Yahoo

Microsoft's resumed interest in Yahoo's search business, suggests that Yahoo is close to outsourcing some of its search to Google. The antitrust implications of the world's #1 and #3 online advertising competitors, Google and Microsoft, fighting over the #2 competitor, Yahoo, has finally attracted serious media attention.

• A Financial Times editorial: "Search for a rival" asks: "How do you spell Googlopoly?" (I spelled it with an 'e' in my www.googleopoly.net Google-Doubleclick analysis and Senate testimony.)
  • The FT: "Any deal that lets Google supply part of Yahoo’s search advertising, however it is dressed up, must be bad for competition." 
• Today the New York Times', Steve Lohr, with contributions from Miguel Helft, produced the most in-depth reporting to date of the antitrust issues surrounding a Google-Yahoo search partnership: "Google Says It Will Defend Competitive Rationale of a Yahoo Deal."  

Now that the antitrust implications of this issue are beginning to get heightened media scrutiny, let me lay out my case of why a new Google-Yahoo search partnership is anti-competitive collusion and not benign collaboration. 

First, one must look at the competitive impact of a Google-Yahoo partnership.

The new 2008 Internet Advertising Revenue report just came out from the Interactive Advertising Bureau.

It has U.S. Internet advertising revenues for 2007 at $21.2b, up an impressive 26% from 2006 revenues of $16.9b, but nowhere near as impressive as Google's 56% overall revenue growth in 2007. 

With the pending Google-Yahoo outsourcing pact reportedly being negotiated, I thought it might be iluminating or instructive to see what share of U.S. Internet advertising revenues Google and Yahoo each have, and what they would have on a combined basis. 

• Given that Google's 2007 U.S. revenues were ~$8.9b that would be about 42% of all U.S. advertising of $21.2b.
• Given that Yahoo's 2007 U.S. revenues were ~$4.7b that would be about 22% of all U.S. advertising revenues of $21.2b.
• That would put Google and Yahoo's combined Internet advertising revenue shares at 64% that the "partnership" would collectively control. 

At a minimum, the domination of these two players in the U.S. Internet advertising market, combined with Google's incredible momentum in taking share from all its competitors signalling powerful network effects, must concern both the DOJ and FTC.

If Google and Yahoo partner to not compete as fully as they did before... where is competition going to come from? 

With respect and affection to the memory of the late great Dr. Seuss.... 

Googlehoo mocks all the boo hoos over their ballyhooed Googlehoo coup.

Get a clue.

Googlehoo pooh-poohs a collusive coup between their crews.

It's no glue to screw you.

But, who knew it would be true, that Googlehoo would rue, that Justice could see through, Googlehoo's collusion boo-boo, and eventually sue?

Can we construe Mr. Icahn's Yahoo debut, and shareholder kung fu, as a rejection of the Googlehoo view?

Will Yahoo bid Googlehoo adieu, overcome the Microsoft taboo, and renew the review of the Microsoft view?

As Google and Yahoo continue to negotiate their search outsourcing pact, pesky competitive facts keep arising that suggest that such a deal is likely to eventually be found by antitrust officials to be illegal anti-competitive collusion.

• Yahoo is running an AP story that says that Google has now surpassed Yahoo as the #1 "most popular website in the United States according to Comscore."
• This is on top of Google and Yahoo being the #1 and #2 search providers in the U.S. and the leading competitors in the display advertising market, ad tools market and ad brokering market.

The operative question is not whether Google and Yahoo can craft an acceptable search advertising outsourcing pact that can pass antitrust muster, but whether the DOJ wants to encourage such intimate  and important business "cooperation" between Google, the dominant #1 in the market, and one of the only two companies that most consider to be Google's primary competition in multiple market segments.

Kudos to Richard Waters of FT for his insightful analysis "Google triumphant."

Let me highlight some key takeaways:

• “The failure of the Microsoft/Yahoo merger eliminates the biggest short-term threat” to Google’s unrivalled position on the web, says David Yoffie, a professor at Harvard Business School. For now, its momentum “seems unstoppable”.

The article also provides excellent new detail to the thesis in my Googleopoly analysis and Senate testimony that Google's real dominance is as the dominant "market maker" for online advertising.

BBC News' Silicon Valley bureau is reporting on increasing "Alarm at Google-Yahoo partnering" and is highlighting a new letter to the DOJ Antitrust Division by 16 civil rights and rural advocacy bodies:

• "In a letter to Assistant Attorney General Thomas Barnett, head of the Justice Department's anti-trust division, the coalition argues that such a deal would give Google almost 90% of the search advertising market and strengthen its influence over internet users' access to information.

  "We face a possible future in which no content could be seamlessly accessed without Google's permission," the letter states."

It appears others are noticing that Google's dominance of search, and online advertising threatens to control the monetization of all content on the Internet...

Last summer I wrote an op-ed for the Washington Times entitled: "The Ultimate Internet GateKeeper," which is what Google is quickly becoming...  

The American Consumer Intstitute just put out a good consumergram on: the DOJ investigation of the Google-Yahoo deal and asks if the search market has reached a tipping point.

• The ACI consumergram is asking the right questions.
• More entities should be, and will be, asking these types of questions going forward because the facts and Google's behavior will demand it.

As I explained in detail in my Googleopoly analysis, the search market has already tipped to Google and the Google-DoubleClick merger was a tipping point to enable Google to extend its market power in search advertising to display and online advertising as well.

As I explained the stakes of lax antitrust enforcement in my Senate Judiciary testimony:

"The Stakes of Lax Antitrust Enforcement: Will Google be enabled to become the:

• “Online-advertising bottleneck provider” picking Internet content winners and losers?

Found a smoking gun on how Google's conflict of interests actually hurts Google users, which I explain later in this post.

• As I have blogged several times of late, here, here, here, here, and here, Google works for advertisers and publishers not users/consumers; and Google's undisclosed conflict of interest, lulls Google's users into a false sense of security that Google is looking out for users' best interests -- and safety -- when they clearly are not.
• I have found specific evidence below that Google is not looking out for its users' best interests or safety. 

Google knows there are "potentially harmful sites that make Google users more vulnerable to spammers or scammers. I have suggested before that they could easily warn users of the danger from specific results with warnings on search result pages.

A Yahoo-Google search outsourcing pact arguably faces even more problems with European antitrust authorities than the reported U.S. DOJ antitrust investigation, for two reasons:

Dominant #1 Google, in calling #2 Yahoo to discuss a slow competitive search surrender by Yahoo to Google, in order to thwart a purchase of Yahoo by #3 Microsoft, apparently succeeded.