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Google backs out of Yahoo agreement -- wants to avoid protracted legal battle with DOJ

Google announced it was backing out of the Yahoo agreement just a few minutes ago on its blog.

Commentary will follow.

Century Foundation asks Google to pay for content

Kudos to Peter Osnos of The Century Foundation for connecting the dots in his piece: "The Platform: make Google pay."

  • Mr. Osnos asks the pertinent question: Now that Google has conceded the principle that infomation is not free in its $125m settlement with authors/publishers, why don't newspapers and magazines insist on getting paid for their content?
  • It's a thought-provoking piece read -- I recommend it. 

Mr. Osnos' central thesis becomes even more important when you consider that Mr. Schmidt recently suggested to advertising executives that they should consider if the business model for journalism should become a not-for-profit model!

What many in the journalism industry do not appreciate is that Google is quietly cheering on the demise of modern journalism and Big Media so that it can be replaced by citizen journalists that will of course use their platform predominantly through, Blogger, YouTube, and Google Knol.

  • Google believes it can provide anyone and everyone a more efficient digital content platform than anyone else.
  • Apparently Google's real mission is to organize all the producers of the world's information -- to work for Google!

Google-Yahoo offer to cut their deal in half -- DOJ knows you can't unscamble eggs

Google and Yahoo have agreed to cut back their initial proposed agreement from 10 years to 2 and to a revenue cap of 25% of Yahoo's search business -- per WSJ reports -- in an effort to salvage their proposed ad partnership.  

What does this mean?

In practical terms, the agreement would go from being worth ~$800m to Yahoo (or almost half of Yahoo's search business) to ~$400m to Yahoo (or no more than one quarter of Yahoo's $1.6b annual search  business.)

Bottom line:

The DOJ is unlikely to agree to this new offer because:

  • This agreement would still make #2 search competitor Yahoo unacceptably dependent on #1 search competitor Google for its growth, profits and valuation. 
    • The agreement would still make Yahoo more interested in cooperating with its single biggest business relationship, Google, rather than competing with them.

Lastly, the DOJ understands, if they let even a cut back agreement go forward, it would be extremely difficult for the DOJ to ever "unscramble the eggs that this agreement would scamble" if the agreement proved problematic for competition in the future.

  • As a general rule the DOJ does not like to get into arrangements that they can't get out of if they need to.
  • It's just common sense.  

More on Google extending its monopoly to books

Google's $125m settlement with authors/publishers is an excellent window into how Google intends to anti-competitively extend its de facto search advertising monopoly market power to other content markets.

  • Think about it; if Google only has to pay a penalty of less than a penny on the book-selling dollar, why wouldn't Google be emboldened to steal all the entertainment property of others, and just settle for less than a penny on the dollar like it has with books? 
  • What a cheap and easy way to extend and cement one's monopoly market power in search advertising into other content markets.    

Kudos to Professor James Gibson and his op-ed in the Washington Post today, "Google's New Monopoly" where he spotlights the anti-competitive effects of the Google-book settlement because a deal cut with no competition can embed barriers to entry so that competition can never emerge to compete with Google going forward in digitized books. 

  • I made a similar point in my post "Google proves crime does pay -- if you have enough market power." 

More on Google extending its monopoly market power:

Google claims the settlement is not an extension of market power because Google is not requiring an exclusive arrangement from authors or publishers. This is brilliant misdirection. Google doesn't need a formal exclusive because their Machiavellian scheme grants them a practical exclusive arrangement.

Google' suckered Yahoo badly in Google-Yahoo exit terms

Yahoo deserves a seat in the Sucker Hall of Shame for how badly it has bungled its strategic options over the last year.

  • Reuters reports that "Google may scrap Yahoo deal" and reported that ""Yahoo wants the deal and they are willing to have Google sign anything at the Justice Department to have them do it," said the source."  

In strategically choosing to go with an ad agreement with Google over a search deal with Microsoft, Yahoo bet the farm that the Google-Yahoo ad agreement could pass muster with the DOJ. oops!

  • To make matters worse, Yahoo negotiated a one-sided desperate ad agreement with Google.
  • They gave Google a poison pill of $250m if Yahoo were bought by another entity, (i.e. Microsoft), yet they did not protect their own interests by holding Google to a more standard firmer committment to do everything necessary to consumate a Google-Yahoo deal -- like fight for it in court. 
  • It will soon be apparent that Yahoo's lawyers and executives did not protect themselves very well legally. 

Yahoo's leadership should be panicked now realizing that they were suckered badly by Google.

Google Proves Crime Does Pay – If You Have Enough Market Power

Google, in settling with authors/publishers for $125m over their copyright infringement lawsuits, has cleverly leveraged its market power to tip, and lock in, another Internet segment to de facto Google monopoly control – access to most of the world’s books online. The untold story here is how this settlement:

·         Enthrones Google as the de facto gatekeeper to access most of the world’s books online;

·         Establishes a “new model” for online content distribution;

Google settles lawsuit with authors/publishers -- What it means for Google, others and antitrust

Google, the most-sued intellectual property infringer in the world, just settled a class action lawsuit with authors and publishers for $125m and a revenue sharing deal going forward;  this deal has much broader implications than most would think for Google, for other companies suing Google for theft, and for the pending Google-Yahoo ad partnership.

Implications for Google: After steadfastly maintaining that they had done nothing wrong and that they were protected by the concept of fair use, Google has now de facto conceded that it was broadly infringing on authors' and publishers' copyrights, while also signalling it feared losing in court. 

Google phone: What 'open' really means to Google

Google is not really for openness because Google won't allow 'open' auctions for its keyword advertising so bidders could track the bidding and have some influence over the outcome.

  • The reason Google won't allow 'open' key word auctions is that it would immediately expose how much Google anti-competitively self-deals and front-runs the auction to the advantage of Google and the disadvantage of Google's customers. 
  •   Google's real definition for 'open' is 'Google-favored.'


When it comes to openness and privacy, Google certainly does not lead by example.

Why Google wins from Google-Yahoo postponements -- lessons from Machiavelli

Famed philosopher of power, Nicocolo Machiavelli, would have to smile at Google's maestro market power performance in the storied Google-Yahoo affair.

  • As Machiavelli would have advised, Google is laser focused on enhancing its market power.
  • Let's review this modern-day Machiavellian plot.  

First, Google successfully thwarted what it recognized as the single most serious potential competitive threat to Google -- a Microsoft-Yahoo merger or search alliance.

  • From the start, Google publicly made clear that it was opposed to a Microsoft-Yahoo combination and bent on stopping it. 

Second, given the deep ties between Google and Yahoo's founders -- Google understood Yahoo's founders were emotionally, philosophically, and culturally opposed to aligning with Microsoft.

What Yahoo Earnings Say about Google-Yahoo

Yahoo's earnings provide another excellent window into why the DOJ has serious antitrust concerns with the proposed ad partnership between Google and Yahoo.

  • Yahoo's discussion of its 4Q08 earnings provides the DOJ with substantial fresh evidence that Yahoo continues to lose revenue and profit share to Google.
  • Moreover, Yahoo's earnings report showed Yahoo was clearly caught off guard that the Google-Yahoo ad agreement did not get cleared by DOJ, as evidenced by the big whipsaw in Yahoo's headcount plans.

I.  Evidence Yahoo is losing revenue/profit share to Google:

While Yahoo tried to put the best face on Yahoo's search business growth, in the comparisons that matter to the DOJ, Yahoo slid much further behind Google.

From 3Q07 to 3Q08, Yahoo grew overall revenues by $.018b or 1%, and search revenues $.063b or 17%, while Google grew search revenues $1.310b or 31%.

  • In other words, in the last year, Google grew 20 times more revenue than Yahoo in absolute terms.

In 3Q08, Yahoo's operating income was $.070b, a decrease of 53% from 3Q07, while Google's operating income was $1.743b, an increase of 32% from 3Q07.


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