Kara Swisher

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The Don't-Worry-Jack Yahoogle Argument (BoomTown Is Still Not Reassured)

With more critics piling on to the just-say-no-to-Yahoogle bandwagon–questioning the controversial ad deal for Yahoo to outsource some of its search ads to Google–sources said some top Google execs are now hightailing it to Washington, D.C., to smooth over any regulatory feathers the company might have ruffled with its aggressive, damn-the-torpedoes approach to pushing the deal forward.

The partnership is set to start up around Oct. 13 and promises to give the much-suffering Yahoo (YHOO) a huge boost in revenues.

Google (GOOG), of course, benefits by blocking Microsoft (MSFT), which has caused the software giant to lobby against the deal like a lipstick-wearing pitbull.

Google and Microsoft have been locked in a variety of tech battles on many fronts of late, but the Yahoo front has been a particularly rough one.

Critics like Microsoft have a lot of ammo here though, especially because Yahoo and Google together will claim over 80 percent of the search market.

That has caused a big outcry to prevent the No. 1 and No. 2 players from partnering.

The latest objection, among a passel of them, came earlier this week from the World Federation of Advertisers, which has asked the European Commission to stop the partnership, even though the deal, as currently conceived, impacts only U.S. Web sites.

So to assuage the tumult, Google is glad-handing regulators, even as Yahoo announced a new group for advertisers called the Digital Advisory Council.

“Opening up Yahoo! is a key part of our strategy, and we want to help advertisers understand how they can benefit from this approach,” said Yahoo U.S. EVP Hilary Schneider. “At the same time, there has been confusion and misinformation surrounding Yahoo!’s agreement with Google, which represents another key milestone in opening up our network. As questions emerge about how Yahoo! will implement this agreement, the Advisory Council will provide a forum for us to engage in a dialogue with key customers on those issues.”

Well, phew! A council! That’s sure to bring online ad harmony across the planet!

Actually, it all feels like that model United Nations thing I grudgingly did in high school, and almost as useful.

And the pair also got a boost from New York Times Digital Domain columnist Randall Stross, who penned a piece Sunday called “Why the Google-Yahoo Ad Deal Is Nothing to Fear.”

Nothing? Really? Not even a little bit?

BoomTown has got to say, we’re still a smidgen nervous. OK, tons and tons. (And, it turns out TechCrunch’s Michael Arrington agrees with me, so you know it is serious!)

Still, in the interest of fairness, let’s examine Stross’s main argument, which is essentially that Google’s and Yahoo’s more than 80 percent market share does not matter.

“Google controls about 70 percent of the search advertising market. Doesn’t that give it a monopolist’s ability to set prices as high as it wishes?

“It does not. Google does not set the prices. Its advertisers do, bidding against one another for the amount they will pay when a user clicks on one of their ads. They do the same for ads on Yahoo and Microsoft search sites, too.”

Noting Microsoft’s efforts to portray Google as a “price-controlling monster,” Stross then tried to make a case that worries about higher prices are currently just speculation and not based in practice.

“Even though this is a business based on auction pricing, the specter of price fixing has been raised by demagogues. Shout ‘monopoly’ loud enough and point to ’90 percent share’ of something–it doesn’t really matter what–and federal and state regulators will decide this is a matter meriting their close attention.

“One company has done more than any other to publicly disparage the Yahoo-Google deal: Microsoft, the same company that did not succeed in acquiring Yahoo earlier this year. Hell hath no fury like a suitor scorned.”

Oh dear, the loser-boyfriend argument, which is a canard.

Sure, Microsoft is up to all sorts of tricks and aggressive lobbying about the deal–just as Google surely would be if the tables were turned and Microsoft had won the heart of Yahoo CEO Jerry Yang and consummated a merger marriage.

And Google and Yahoo are correct that the auction model means advertisers set prices for ads.

But what Stross is leaving out is the key problem of what happens later, when perhaps Yahoo’s share of the search market declines even further–as is the inexorable trend–and Yahoo becomes yet another vassal of Google’s largess.

That’s now true for AOL, Ask, MySpace and many others. And it is in no one’s interest–especially publishers–to have just one place to turn, which is what they will have, since Google will increasingly yield the best results.

Last week, for example, I was meeting with a big advertiser on both Google and Yahoo, who noted that he liked to have two strong choices.

“In the end, as Yahoo’s results weaken, it will probably only make sense to use Google,” he said. “And that opens up a whole can of worms.”

Indeed. Which is why–at the very least–regulators should force Google and Yahoo to make some commitments about their deal.

The kind of trust-but-verify-later requirements that anticipate possible problems was well argued in the form of a white paper yesterday from a nonprofit think tank called the American Antitrust Institute.

The report was relatively even-handed, noting, “the transaction should be viewed as presumptively anticompetitive, although it may also contain possible pro-competitive benefits.”

So, in the interests of consumer and advertisers and publishers, it is incumbent on the government to get tweaks to the Yahoogle deal that minimize the former and maximize the latter.

Without such promises, who knows what tomorrow brings in a world in which one search engine survives?

Please see this disclosure related to me and Google.


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