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My speech on Google/Yahoo-Japan deal in Tokyo today

I'm in Tokyo Japan and just got done giving the keynote speech to about 100 Japanese industry representatives at a forum on the negative impact on competition and innovation of the partnership between Yahoo-Japan and Google, which will control over 90% of the Japanese search advertising market.

  • The remarkable thing about the event was that it was literally the first public debate or 'open' discussion of the deal among affected stakeholders in Japan since the deal was approved secretly a few months ago!

I explained the three "Ds" of the deal: dependency, decline and disintermediation (see the full speech below.) There was a Google-friendly panel of two professors and a journalist that critiqued my speech and I was afforded full opportunity to rebut all their points.

It is amazing to me that a deal that has such far-reaching negative effects on Japanese industry, Japan's economy, identity and culture, as this, was decided without any consultation or input from industry or other parts of Government affected by the deal.

Hopefully this 'open' healthy debate that aired both sides of the issue in public for the first time, showed that no one has anything to fear in including affected stakeholders in a public discussion of whether this deal actually serves Japan's interests overall.

Hopefully, this healthy discussion and debate will continue.



Japan: Powered by Google?

Information Communications Policy Forum Keynote

Tokyo, Japan; September 30, 2010

Scott Cleland, President, Precursor LLC

Thank you very much for the honor of speaking before this important and distinguished forum.


My purpose today is to explain the impact of the Yahoo-Japan/Google partnership for Japan and Japanese industry given America’s experience of prohibiting a similar proposed partnership between Yahoo and Google.

In 2008, Google proposed to partner with Yahoo in search advertising in the United States. After an eight month investigation including over a hundred stakeholders, the U.S. Department of Justice Antitrust Division blocked the Yahoo-Google partnership by threatening to take the most severe action available to it – a Sherman Act Section 2 monopolization case against Google.

The Yahoo-Google deal was opposed by the U.S. Government in part because industry provided essential expertise and explained how an ad partnership between Yahoo and Google would hurt competition and innovation.

For example, America’s largest advertiser association strongly opposed the Yahoo-Google ad agreement because it would eliminate their competitive power to choose.

Google and Yahoo’s customers urged the U.S. Government to protect search advertising competition.

The U.S. experience shows that it is important for industry to be informed and to share their assessments of how such a partnership could affect competition and innovation.

Dominance by one search engine is a problem.

The Problem

Simply, Yahoo-Japan’s outsourcing of its search and ad technology platform to Google will lead to an end of effective online advertising competition in Japan and will lead to a de facto 90+% Google monopoly of search and online advertising.

This outsourcing “partnership” will cause: Dependency of Yahoo-Japan Corp. on Google Inc.; Decline in Japan’s online competitiveness; and Disintermediation of critical Japanese vertical businesses – by Google.

This is dependency, not competition.

Not Competition:

Before the “partnership,” Japan had strong Japan-centered competition where Yahoo-Japan set the competitive standard. Google was a hungry competitor with competitive incentive to invest, innovate and strive to better serve Japanese users, advertisers, publishers, and developers -- than Yahoo-Japan.

With a monopoly “partnership,” there is no rivalry to improve, just joint interest to lower costs and increase prices to maximize profits – supremely confident that users, advertisers, publishers, and developers have no other viable choice to a Yahoo-Japan/Google monopoly. This “partnership” is the online equivalent of Japan outsourcing most all its auto production and sales to America while maintaining control over paint colors and feature options.

Yahoo-Japan is outsourcing the most valuable part of the business -- the part that’s rare and extremely hard to duplicate -- the search and ad engine technology that aggregates and controls all the most important business information: i.e. supply & demand; and all the user, advertiser, and publisher relationships and insider knowledge. Yahoo-Japan increasingly could become just a reseller of Google adding less and less value because they will be providing less and less of the valuable inputs to both search and advertising. Over time Yahoo-Japan increasingly will dress up and resell the content Google promotes and can best monetize.

Dependency on Google:

Yahoo-Japan will effectively work for Google Inc. Yahoo-Japan will become a satellite of Google Inc. dependent on Google’s technology and monetization engine. Increasingly, Google Inc. will determine Yahoo-Japan’s profitability, growth prospects, and value.

Simply, Yahoo-Japan is essentially “retiring” from the strategically important search and ad technology business and will be paid a “retirement annuity” by Google for their business. Yahoo-USA learned this painful lesson when it outsourced search to Google several years ago. Yahoo quickly fell behind Google and could never catch up from having “retired” from the business.

At core, Yahoo-Japan needs Google more than Google needs Yahoo-Japan. Yahoo-Japan represents ~4% of the world’s searches and ~5% of Google’s searches. Google will represent ~100% of Yahoo-Japan’s search and ad monetization.

Google understands that it does not need to buy an entity to get control of it. Google CEO Eric Schmidt told Fortune 1-8-09: “I think the solution is tighter integration. In other words, we can do this without making an acquisition. The term I’ve been using is ‘merge without merging’. The web allows you to do that, where you can get the web systems of both organizations fairly well integrated, and you don’t have to do it on an exclusive basis.” Google understands that integration means Google dominance. The integrated company becomes like a subsidiary of Google Inc. because Google ultimately controls their business and financial success.

Google is not a good partner long term. Google promises a lot at first to win a partnership. Later when the partner becomes dependent on Google, Google lowers the benefits. For example: AOL: Google invested one billion dollars in AOL in 2005 to get AOL’s Internet traffic because AOL represented about a sixth of Google’s revenues. Recently, Google renewed its deal with AOL with no investment, and now AOL must outsource more of its services to Google for the same terms as before. MySpace:   After signing a four-year $900m guaranteed deal with Google in 2006, MySpace now is reported to be getting no guarantees and a deal that is only 20% of the last deal -- $50m versus $225m a year.

This monopoly will lead to a decline in Japan’s competitiveness.

The future will not be like the past.

Competitive innovation is important to Japan’s high tech industry and the overall Japanese economy. The shift from Japan-driven search and advertising to a Google search and advertising monopoly means Japan’s online market will shift from two hungry competitors wanting to please Japanese users, advertisers, publishers, and developers, to a complacent monopolist that knows the Japanese have no alternative to what Google chooses to provide Japan. Japan is at risk of becoming an unimportant market to Google and the online economy.

End of competition incentive for Japan to innovate online.

Without Yahoo-Japan online search and advertising competition, there will be no competitive incentive or reason to continue to improve the online experience for Japanese users, advertisers, publishers, or developers in the wire line or mobile online markets.

Google simply does not have the same Japanese expertise, desire, motivation, or focus necessary to satisfy the Japanese market as much as Yahoo-Japan has. Without competitive incentives or market discipline, it is inevitable that the Japanese online/mobile economy will decline. And without competition, Google’s well-known aversion to customer service and responsiveness to concerns or complaints – will get even worse – because Google will be at no serious risk of losing business to a competitor.

Google’s distribution platform will disintermediate Japanese businesses.

Google understands that its search and advertising platform is also the world’s most dominant digital distribution network, and that Google can distribute any digitize-able content less expensively and more targeted than any other digital distributor. Google also knows it has the capability to monetize digital content better than any other digital distributor.

Google also has a reputation of learning “partner’s” businesses by supplying them technology, and then going into business against them based on the special knowledge they have gained from their “partnership.”

MySpace: Google provides search advertising for MySpace, but Google is going into the social networking business against MySpace with “Google Me.”

IAC: Google provides search monetization for IAC’s top search property,, and now Google is buying ITA Software to compete with IAC’s Expedia business.

Amazon: Google provided search to Amazon until Google digitized twelve million of the world’s books without permission, to offer free ad-supported books in competition with Amazon Kindle subscriptions.

eBay: Google provided search services for eBay, but started Google CheckOut in direct competition to eBay’s PayPal.

Apple: Shortly after Google’s CEO left Apple’s Board and said Google was not a competitor to Apple,  Google very quickly offered devices in competition to Apple’s iPhone, iPad, and Apple TV.

If Google is true to past practice, Google will use its coming monopoly power to enter and dominate many Japanese vertical sectors with lower cost of distribution and a much better sense of user, advertiser, publisher, and developer demand than any Japanese company ever could have. It is only a matter of time before Google will leverage its monopoly power in digital distribution to enter into direct competition with Japanese: Telecommunications, mobile, and Internet services providers; Advertising agencies, ad networks and analytics; Local advertising, directories and websites; and Video providers, books, newspapers, magazines, and blogs.

Simply, Google could hurt many Japanese industries by offering for free what Japanese companies charge for, because Google can monetize free content with an online advertising monopoly and Japanese industry cannot.


Search is a fundamental technology and portal to the Internet. Search and the monetization of content will only become more important as more of the economy moves online. Thus maintaining competition and innovation in search and online advertising is critical to the future of Japanese industry, Japan’s economy and Japan’s identity and culture long term.  Japanese industry is best served by being informed and engaged in this critical process.

Thank you again to the ICPF for the honor of speaking to this important industry audience about such a critical issue. I look forward to answering any of your questions.