Kara Swisher

Recent Posts by Kara Swisher

Schmidt Endorses Obama, While Justice Department Mulls Yahoogle Suit

You have to admire the sledgehammer stylings of Google CEO Eric Schmidt, who loves to accuse Microsoft (justifiably, I might add) of bullying lobbying tactics in our nation’s capital, in the latest moves in the regulatory fight over the controversial search advertising outsourcing partnership that Yahoo and Google have struck.

Today, just days before the Justice Department will decide whether to move ahead with a lawsuit to stop the Yahoogle deal from proceeding or let it move forward with some other remedy or tweaking, Schmidt announced that he would be campaigning for Democratic presidential candidate Sen. Barack Obama in the last two weeks of the election.

Schmidt said in an interview that it was a personal endorsement and not from the company, even though many of its top execs are longtime supporters of Obama.

“I’m doing this personally,” he said. “Google is officially neutral.”

Well maybe so, and Schmidt has long been politically active himself.

But I cannot help but be struck by the perfect timing of the announcement, right as government officials under the Bush administration must make a move before the election makes them unable to do so.

(Then again, if Schmidt had endorsed Obama after any move by the government, it probably would have looked worse.)

In any case, it now makes any action by Washington policymakers even more complex.

To begin, Assistant Attorney General for Antitrust Thomas Barnett (pictured here), who will 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.

But, in taking a long look at the deal in the first place, a partnership that does not actually need Justice Department approval to move forward, and hiring an outside counsel too, Barnett has also put himself out on a limb.

Thus, he is likely not to pat Yahoo (YHOO) and Google (GOOG) on the back and wish them good luck in their exciting endeavor.

That’s especially true given that a wide range of advertisers has expressed worries about the deal, which they say will lift online search ad prices and create a dangerous duopoly, along with public interest groups that have called the deal dangerous. Plus, there are also the many other special interest groups, all jacked up by Microsoft’s lobbying.

(It still surprises me up that some reports find it shocking that Microsoft is being aggressive here–helloooooo–Google would do exactly the same if the tables were turned.)

Google and Yahoo are arguing that the deal is nonexclusive, does not violate antitrust laws and that prices will not rise since they are determined by auction.

Still, sources close to all parties–Yahoo, Google and Microsoft (MSFT)–said the decision from government regulators, expected as early as this Wednesday, could still go a number of ways.

Under one scenario, the government could file a lawsuit and ask for an injunction to stop the deal from starting at all.

This move would be the most drastic of all. And, more to the point, it is hardest to prove, because there is no actual damage yet to point to as a result of the deal, even if the pair do control upward of 80 percent of the search market.

Under a second, the Justice Department could file a lawsuit opposing the deal, but not ask that it be stopped.

That means that the Yahoo and Google deal could go forward with implementation, even with the suit hanging over its head. It is a move that would provide a lot of data to determine the true impact of the No. 1 and No. 2 search players being in business together.

Under a third scenario, regulators could give Google and Yahoo tacit approval for the deal, with certain new rules about caps or monitoring that are agreed to in advance.

This option is the most complicated, since it is hard to determine what is dangerous and what is not in the fast-moving world of search. Will the Justice Department have a monitor sitting cluelessly next to Yahoo and Google engineers as they fiddle with the algorithm?

Still some sort of new rules to the deal are expected, if Justice takes a pass on a lawsuit.

“They are not going to hold a parade for us, and it is obvious they are interested in putting appropriate guardrails in place,” said one source close to Yahoo and Google. “But they might just say, ‘Go ahead, but we are watching you very carefully.’”

Under a fourth scenario, which Google is pushing for strongly, the Justice Department could simply pass on taking any action at all.

In that case, which seems unlikely, it is not without possibility that some advertisers or even Microsoft could go to court to seek their own injunctions, although that would be extreme.

Microsoft could also ask, given that the Yahoogle deal is nonexclusive, to make a similar deal with Yahoo. If it is rejected, the software giant could use that as proof that it is not.

But what is perhaps most interesting is that Yahoo and Google have not completely agreed as to how to handle this difficult process.

Yahoo, which has only recently become more active in lobbying for the deal, has been more willing to allow the government to set parameters in order to get regulatory blessing.

The company has also been quietly telling advertisers worried about it there are moves to come–Yahoo execs are obviously referring to a possible merger deal with Time Warner over its AOL unit–that mean that advertisers should be less scared of Yahoo becoming a satellite of Google.

Google, as is typical for it, has been more aggressive in its stance, holding out for less–if any–tweaking of the original Yahoogle deal.

Even its partner Yahoo thinks the powerful Internet giant has had a tin ear in this regard so far, with Yahoo execs cringing when Schmidt was widely quoted as saying that the deal would move forward with or without Justice Department approval.

The statement by Schmidt, in which he also added, “time is money in our business,” made him seem a bit arrogant about the role policymakers have.

Obviously, Schmidt misspoke, which all neophyte politicians tend to do now and again.

Today, he was much more circumspect, although he still managed to get a dig–or was it a warning?–in.

“My sense is, the Justice Department makes judgments on these issues independent of politics,” Schmidt said, priming the pump perfectly. “It would be unfair to Justice to imply [that supporting Sen. Obama] would make a difference.”

Yes, that would be completely unfair.

Please see this disclosure related to me and Google.


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