Yahoo

Kudos to the Washington Post for an excellent editorial: "Searching for Dollars: The Justice Department rightly opposed a Google-Yahoo deal."

Thanks to a competitive Internet I am grateful to be able to freely respond to personal attacks on me and my pro-Internet competition views.

Mr. Weinstein of www.PFIR.org, People for Internet Responsibility, recently criticized me in his blog, which is his right, however, he did it initially in a manner which appears to be at odds with how Mr. Weinstein has suggested everyone should responsibly conduct themselves on the Internet. In particular, I reference the statement below from PFIR’s website, which is the concluding paragraph of why Mr. Weinstein formed PFIR.

Google's CEO Eric Schmidt is in deep denial over the antitrust implications of Google being blocked by the DOJ from brazenly trying to collude to divy up the search market with its biggest competitor Yahoo.

In an interview with the New York Times' Miguel Helft, Mr. Schmidt made a couple of very brazen assertions that will obviously concern DOJ antitrust officials and State Attorneys General interested in preserving Internet competition going forward.

First, Helft asked about the proposed Google-Yahoo deal: "...was it a mistake for Google to propose the deal in the first place?"

Google remains its own worst enemy.

After dodging a certain DOJ antitrust suit from the most lenient antitrust enforcer in the modern era by withdrawing from the Yahoo ad agreement, Google’s CEO essentially spit at DOJ/State AG prosecutors by publicly and gratuitously saying: Google would have beaten the DOJ in court, nothing has changed, and that they were happy they reached out to Yahoo.

Google’s unrepentant stance was captured well in the New York Times article by Miguel Helft: “Google and Yahoo Say Deal Would Have Survived a Suit.”

After reading most all of the coverage of the demise of the Google-Yahoo ad partnership, I wanted to flag what I thought was the best, which was in the Breakingviews.com section of the New York Times today by Constantine Courcoulas and Robert Cyran.

• See this link  to the Breakingviews.com story, but be sure to skip the first unrelated story at the top and go the second story "Google Backs Off."

I couldn't agree more with it -- you can see why by checking out one of my earlier posts: "Why Google wins from Google-Yahoo postponements -- lessons from Machiavelli."  

The DOJ released a statement explaining why it would have sued to block the Google-Yahoo ad partnership had Google not backed out of the arrangement.

In a nutshell, the DOJ said it was prepared to sue in Federal Court to block the proposed Google-Yahoo ad partnership because the DOJ concluded that:

• The proposed agreement was anti-competitive and illegal;
• Google has dominant market power in two "relevant anti-trust markets":
  • Internet search advertising, and
  • Internet search syndication;
• Yahoo would have become a collaborator with Google rather than a competitor "materially reducing important competitive rivalry between" Google and Yahoo.

Bottom line:

Google has hit a very real antitrust wall. More importantly it is now front and center on the DOJ's radar screen as an aspiring Internet advertising monopolist willing to push the antitrust envelope -- unless the DOJ steps in to preserve Internet competition. 

While Google may not realize it, the world is now a very different place for Google -- it no longer has free rein to do whatever it pleases.

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

Commentary will follow.

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.  

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, 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;