Press reports of AOL's interest in buying or partnering with Yahoo appear to have missed another potential serious deal complication -- antitrust scrutiny.
- Let me be clear, I am not suggesting an AOL-Yahoo combination on its own would raise direct traditional antitrust issues, but its hard to see how it would not attract substantial antitrust/collusion scrutiny given all the indirect antitrust red flags an AOL-Yahoo tie-up would raise -- i.e. Google vs Yahoo-Microsoft, Google-ITA Software, Google's tying of search and Google Maps for Google Places/Android, etc.
First, AOL is financially-dependent on Google; Google is Yahoo's biggest and most stable long-term client feeding AOL with about a fifth of its revenues -- via a recently signed 5-year agreement for Google to continue to be AOL's search monetization engine. This deal was negotiated by AOL's CEO, a former longtime senior executive at Google. Simply in antitrust terms, AOL can be viewed as a satellite of Google, because AOL has hitched its financial/business/growth wagon to Google Search, Google Mobile/Android and potentially Google Places.
Second, in 2008 the DOJ threatened a Section 1 & 2 Sherman Antitrust case against Google for trying to monopolize via the Google-Yahoo Ad Agreement. The DOJ was concerned that Google had broken up the effort by Microsoft and Yahoo to create a stronger competitor to Google and that the Ad Agreement would make Yahoo financially-dependent on Google. At the time, Microsoft and Yahoo were the only top search generators that were not part of the Google search Keiretsu.
Third, just this year, the DOJ approved a combination of Microsoft Bing and Yahoo's search in a very rare approval allowing #2 and #3 competitors in a highly concentrated market to combine, which only underscores how concerned the DOJ and EU are with the growing tentacles of Googleopoly.
Fourth, just two months ago, DOJ sanctioned Google for anti-competitive collusion with Apple, Intel, Adobe, and Pixar, and put them under a five-year consent decree and court supervision to ensure they do not collude again in denying their employees the opportunity to earn market-driven compensation. This case combined with the proposed Google-Yahoo ad collusion indicates a Google anti-competitive pattern of behavior, or a Google propensity to anti-competitively collude with business partners.
Fifth, could an AOL-Yahoo deal become a stalking horse for Google to indirectly undermine Yahoo's deal/long-term commitment to outsource Yahoo search to Microsoft? Given that the long term monetization of search for PCs and Mobile is strategically-important to AOL, and that integration-efficiencies effectively would fund an AOL-Yahoo deal, the BIG question will be: which long term search commitment would AOL-Yahoo break? AOL's Google deal? Or Yahoo's Bing deal? Given that Yahoo-Japan linked up with Google just this summer to monopolize over 90% of the Japanese search market -- this is not an academic question.
Sixth, Google's proposed deal to buy ITA Software would be implicated, since Yahoo and AOL are the #2 and #4 search generators in the world, and travel represents about 20% of all searches. Because of AOL's financial dependency on Google, would it push a combined AOL-Yahoo to favor Google for travel-related software, search or advertising?
Finally, Google's push into local advertising via Google Places, Google Maps, and Android could also be implicated by an AOL-Yahoo deal. To maximize mobile revenues with its primary client Google, which is driven by Android tied to Google Maps, could there be pressure for AOL-Yahoo to drop MapQwest and go with Google Maps given that Google has ~98% of the mobile search market and Google ties its search to Google Maps by ranking it first in Googleopoly's search results?
In sum, a potential AOL-Yahoo deal has the look-and-feel of a Jenga blocks game, where each player painstakingly seeks to remove pieces of the block stack without causing the other blocks to topple to the ground.
- The reality of the extreme concentration of how Internet content, products and services are monetized, makes any major deal between the few remaining significant players -- bait for antitrust scrutiny.
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(See Googleopoly VI: Seeing the Big Picture for more analysis on how concentrated and inter-related these markets have become. In particular see pages: 27, 34, 17,18, and 23.)
