Yahoo

The untold story of the Google-Yahoo ad partnership is the exceptional closeness of the founders/leaders of Google and Yahoo -- and whether that exceptional closeness undercuts the credibility of Yahoo's assurances that Yahoo will compete with Google as vigorously after the agreement as before.

Consider how the leading authors who have written books about Google, describe the relationship between the founders of Yahoo and Google. 

First, as background, Yahoo founders, Jerry Yang and David Filo, and Google's founders Larry Page and Sergey Brin were all computer science PHDs at Stanford University a few years apart in the 1990's. 

• "It was Yahoo co-founder and Stanford alumnus David Filo who advised the pair (Google's Page & Brin) otherwise; he told them they should go ahead and enter the search engine business, which would serve as the best way for them to continue to develop their technology and improve their chance of being able to license it in the future." 
  • p.50, "Planet Google," by Randall Stross.

Second, as background, Michael Moritz, of Sequoia Capital, was one of the two original venture capital backers of Google, funding $12.5m of the orginal $25m in venture funding in Google.

The best evidence of market power is when a company utterly disregards its customers' best interests -- because they know their customers have no real competitive alternative. 

• How Google designed its new Chrome browser, to tie its dominant search bar to the previously separate and neutral address bar, into one single 'Omnibox (see p.19),' is Exhibit I in how Google is anti-competitively leveraging its search dominance to its own advantage and to the serious detriment of its advertising customers.   

Advertisers/brand marketers who already are concerned that the Google-Yahoo ad partnership is anti-competitive, and that Google's auctions are anti-competitive because they are not in fact true auctions, should be triply troubled by the anti-competitive implications of Google's Chrome browser technology which efffectively disintermediates brands -- by design.

• Given that Google's Chrome gained about 1% share or roughly 10 million Internet users in the first two weeks of introduction, advertisers should have this new fast-growing trend on their radar screen and concern list.   

What is in the best interests of Google's advertiser/brand marketers?

Google continues to rapidly take revenue share of overall U.S. Internet advertising, per the latest released IAB industry figures.

As the overall Internet advertising growth rate slows from 26% in 2007 to 15% for IH08, Google is strengthening its relative grip  on the overall Internet advertising market in the United States, not just the search market that Google is well known to increasingly dominate with 71% share of searches per Hitwise.  

• What the IAB overall data show is that:
  • Google's market power and networks effects appear to extend more broadly into the overall Internet advertising market; and
  • If allowed to partner with Yahoo, Google-Yahoo, in one fell swoop, would dominate the overall U.S. Internet advertising market that IAB measures. 

Per the new IAB data on the overall U.S. advertising market:

Just when the DOJ is investigating if the Google-Yahoo ad partnership is anti-competitive, eBay bursts onto the antitrust stage with "investigate us too!" acquisitions of Bill Me Later and more classified ad businesses. (See NYT article  and post, and WSJ article for excellent background.)

Why are the eBay acquisitions relevant to the Google-Yahoo investigation? 

First, they spotlight how dominant and incestuously interdependent the primary Internet players are.

Google is on the wrong side of its customers -- as aspiring monopolists often are. Isn't it a hallmark of competitive markets that companies are responsive and solicitous of customers, especially their biggest customers? Isn't competition about supply meeting demand?

• A New York Times article reminds everyone that Google's customers are among the biggest critics of the Google-Yahoo ad partnership.  
  • “Google and Yahoo claim these are auctions,” said Robert D. Liodice, chief executive of the Association of National Advertisers. “Many of our marketers don’t necessarily believe that these are real auctions.”

In a customer-friendly deal that truly offered innovative benefits to customers, customers would be flooding the DOJ with support for it, not flooding it with opposition like they are. 

• The "innovation" that Google claims is in this deal is "unpopular" with customers precisely because the innovation does not benefit customers, but benefits Google and Yahoo by granting them more market power over customers.

Google's big problem is that they "have met with marketers to seek their support." However, "The Association of National Advertisers said it had not found the companies' arguments persuasive." (per the same NYT article.)  

I wrote a new white paper, Googleopoly III, to answer the core question in the Google-Yahoo deal: Would Yahoo compete as vigorously with Google Post Agreement?

• My detailed analysis concludes Yahoo would not compete as vigorously, because the deal would make Google Yahoo's single most important business relationship -- effectively making Yahoo financially, operationally, and strategically dependent on Google.
• I also describe the agreement as a "Hotel California deal" where Yahoo could check out but never leave...

I wrote this white paper now because, there are many indications that the DOJ will decide to bless or block this Google-Yahoo deal next week before the parties' October 11 review deadline.

The abstract of my 10 page White Paper is below:

The Google-Yahoo ad agreement is at great risk of being blocked by antitrust authorities because of a very serious "tip of the iceberg" problem.

• Google and Yahoo continue to publicly frame the issue as only what is above-the-surface in plain-sight -- i.e. the proposed ad agreement -- or what I describe as the 'tip of the iceberg.'
• Unfortunately for the companies, skilled and dutiful antitrust investigators look deep beneath the surface for the 90% that is  hidden and secret -- the true relationship and incentives between Google and Yahoo -- or what I describe as the rest of the iceberg.
• The reason why the public and press may be surprised if the DOJ challenges the Google-Yahoo ad partnership, is that very few have bothered to dive in and look beneath the surface of this ad agreement to what it means for the overall relationship between Google and Yahoo. 

There are sound reasons our judicial system requires that parties/witnesses testify under oath to tell the truth, the whole truth, and nothing but the truth.

Behavioral advertising industry... you have a problem. A BIG problem.

• Consumer reports just released a major consumer poll that shows that the vast majority of American consumers are unaware of how the behavioral advertising industry invades their privacy and that American consumers overwhelmingly want more personal control over their privacy online.  

The BIG problem the behavioral advertising industry has is that the consumer evidence strongly suggests that the industry has not respected anti-fraud consumer protection laws that require fair representation.

• Specifically, the industry has not fairly represented that they are invading individuals' privacy in ways most Americans do not approve of.  
• Simply, the behavioral advertising industry finds itself squarely on the wrong side of the American consumer, as the public and Washington focus attention on the serious Internet privacy problem of Unauthorized Tracking. 

Consider the stark poll results of the widely respected and independent Consumer Reports:     

There was a major tectonic shift in the Internet privacy debate today at the Senate Commerce Committee hearing on Internet privacy. 

Norman Hawker of the American Antitrust Institute released a measured and balanced white paper, "The proposed Google-Yahoo alliance" that recommends the agreement be blocked if Yahoo can't remain a viable competitor to Google and Yahoo.

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  One telling quote: "It strains credulity, however, to believe that Google would agree to an arrangement that gives its chief rival $800 million

  to invest in efforts that would, if successful, reduce Google’s market power."

The paper is well done. It is a value-added read for those focusing on the outcome of this issue. It is also a good complement to my recent white paper: "Googleopoly II Google's predatory playbook to thwart competition."