The Yahoo-Google Ad Test: Does It Amount to Collusion?

The Justice Department has opened an investigation into the antitrust implications of Yahoo’s (YHOO) recent test with Google (GOOG) to run Google ads on about 3 percent of Yahoo’s search results. Reuters is reporting that “some of the government’s concern focused on a telephone call from Google Chief Executive Eric Schmidt to Yahoo Chief Executive Jerry Yang to offer help in thwarting Microsoft’s bid.”

The test was a response to Microsoft’s (MSFT) unsolicited bid for Yahoo. If a deal with Google can goose Yahoo’s profits, the thinking goes, then shareholders may accept that in some combination with another deal (possibly merging with AOL) as a viable alternative to selling to Microsoft. There is still a 60 to 70 percent gap between what Google collects for each search ad and what Yahoo is able to get. So just handing over search advertising to Google would result in a considerable short-term jump in Yahoo’s finances.

But there is an antitrust problem, which Microsoft (no stranger to antitrust law) has been pointing out all along: Google and Yahoo’s combined search market share is about 80 percent. Just the fact that the two companies are talking to each other about combining forces brings up the specter of collusion. Both companies informed the Justice Department of their joint test. And if any deal were to happen, it would likely only be for a portion of Yahoo’s search advertising in an effort to avoid triggering antitrust objections from the government.

Yahoo and Google are already skating on thin ice. They have already triggered an investigation. And the focus seems to be on collusion, based on the mere active planning on the part of the two search giants to change the market dynamics by cooperating together against Microsoft. Even if this investigation goes nowhere, Google is being warned here that it is dangerously close to monopoly status in search and that the government will treat it accordingly. Different rules apply to monopolies. Just ask Microsoft.

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Comments

[NATEtheGREAT:]

It's nice to see Microsoft not being the one under investigation this time. They make good products that make the world turn. It's funny how if you make an awesome product, you get sued for antitrust.

2008 Apr 24 11:56 AM

[User 181191:]

would there be anti-trust implications if the search ads were only shown to users outside of the US?

2008 Apr 24 01:12 PM

[Koby Menach...:]

Good question... Does US Justice Department has a say if it's non American users (or doesn't it matter because it's a US companies)?

2008 Apr 24 08:01 PM