Why the Yahoogle Deal Will Likely Launch–And Be Coming to an Internet Near You on October 9
Yesterday, BoomTown took a rather strong stand against Google and its recent aggressive efforts to defend its outsourcing deal to sell some of Yahoo’s search advertising.
Given that the pair have a more than 80 percent combined market share in the search business, I and many others–advertisers, publishers and state and federal regulators–are a bit nervous about further concentration of market power in one set of hands, even if they are such Googley hands.
But in the interest of fairness and because I like to argue with myself–combined with some insights from some smart people I have kibitzed with on the issue–here is a counterpoint with three key reasons why Google and Yahoo might hold firm in launching the partnership, which sources said is likely to start on Oct. 9.
1.) The Justice Department is not actually serious about taking on Google.
While it is true that the government has hired seasoned litigator Sandy Litvack–the former antitrust chief in the Jimmy Carter administration–to consider whether it has a case against the controversial partnership, the move by the DOJ’s antitrust unit might be more political coverage than anything else.
Assistant Attorney General for Antitrust Thomas Barnett (pictured here), who will likely be leaving that post after the November election, has not been much of a trustbuster, to say the least, taking a mostly hands-off attitude toward business regulation.
Thus, he might be making the move to placate intense lobbying by Microsoft (MSFT) and to look like the DOJ’s antitrust unit can act.
Interestingly, Barnett had, according to a New York Times piece last year, “urged state prosecutors to reject a confidential antitrust complaint filed by Google that is tied to a consent decree that monitors Microsoft’s behavior. Google has accused Microsoft of designing its latest operating system, Vista, to discourage the use of Google’s desktop search program.”
And even more interesting, Barnett previously worked for a law firm that repped Microsoft on antitrust issues (although Barnett did not work on Microsoft cases).
2.) The Justice Department will lose if it decides to make a case against Google.
Let’s be clear–Google (GOOG) has done nothing wrong yet, because the Yahoo deal has not yet begun.
Well, except that it has been scarily successful in its primary business of search.
Google has argued that such success is no crime and that the deal would have strong user benefits.
The company has also argued that working with Yahoo (YHOO) will not raise online ad prices, part of Google’s basic argument that its auction-style business model where advertisers set the price makes that impossible.
But what its critics are essentially asserting is that, because of its dominance, Google should simply not be allowed to strike a partnership with the second largest player, Yahoo.
Fears include that rise in online ad prices, a Google control over the market that would make it impossible for others to compete and an increased ability to dictate terms to customers.
But, Google argues, that’s all speculative and unknowable until the partnership with Yahoo launches.
Thus, there’s not a whole lot for the Justice Department to hang a case on, in contrast to its case against Microsoft, which landed in court because of bullying behavior that actually took place before the case was waged.
So why should Google run away, when there is no tangible proof of abuse?
Better still, if the DOJ did take Google on and Google won, the Justice Department would be hard-pressed to come at Google again for a good long time.
3.) If Google caves and walks away, it damages Yahoo and makes for a bad precedent.
It is not likely that Google wants to make an enemy of Yahoo, because even in its weakened state, Yahoo is a better to have as a friend than as a foe.
And taking away an expected $800 million Yahoo estimates it will make in added revenue on the deal is not any way to treat a friend.
In addition, one could argue that walking away now is premature. As Google’s power grows, there will never be a better chance for it to win its arguments.
And if Google gives in to DOJ pressure now, essentially admitting it is too powerful, it might have to concede one thing after the next in the future–from distribution deals to acquisitions to whatever it might try to do.
Finally, while I still believe Google should not be in business with Yahoo, I think it is indeed going to stick to its typically stubborn guns, launch on Oct. 9 and then make tweaks that regulators might request based on how the partnership goes.
But, in order to do that most smoothly, it might be a good idea for Google execs to stop making so much noise defending themselves and to resist the urge to attack Microsoft so loudly.
It might even take a clue from the unusually quiet Yahoo, from whom not a peep has been heard on the issue.
Google could do with some of that self-control.
Because that famous line from “Hamlet” certainly applies: The search giant doth protest too much, methinks.
(By the way, besides a press conference by CEO Eric Schmidt this week on the Yahoogle deal, here are two Google posts defending the deal on its public policy blog. One is by Google Chief Economist Hal Varian and another by U.S. ad head Tim Armstrong.
Please see this disclosure related to me and Google.