Google-Yahoo Pact on Hold - For Now

Includes: GOOG, YHOO
by: Ron Haruni

Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO) have agreed to momentarily delay the start of their search-advertising partnership, first announced in June after merger talks between Microsoft (NASDAQ:MSFT) and the Web Portal collapsed, giving U.S. antitrust regulators more time to review the deal.

In a statement Yahoo said:

The companies have agreed to a brief delay in implementing this agreement to continue our ongoing discussions with the Department of Justice. We have had discussions with regulators and look forward to responding to their questions about this agreement.

In a statement Friday, the Mountain View, Calif.-based company said:

When we announced our advertising agreement with Yahoo! in June we agreed to delay its implementation until October to give regulators time to look at the details. As we are still in conversation with the Department of Justice we have agreed to a brief delay in implementing the agreement while those discussions continue. [AllthingsD]

These announcements represent a major shift for both companies. For several months now they have maintained that they would proceed with their advertising partnership plans in early October regardless of the Justice Department’s ongoing antitrust review. In fact, Google’s executive - CEO Eric Schmidt and co-founders and presidents Sergey Brin and Larry Page on Sept. 17 said they would not wait much beyond the intended Oct. 11 start date.

The U.S. Justice Department has been reviewing Yahoo’s partnership with Google and is currently trying, through the help of Mr. Sanford Litvack, a veteran antitrust lawyer, to assess if there is any evidence that Google’s growing power in internet will lead to higher search-advertising prices, and reduce competition in the search advertising market, which Google dominates.

A number of advertiser groups, including the Association of National Advertisers and Microsoft as the No. 3 player in Web search which has lobbied against the pact aggressively, have raised concerns about the deal.

Under terms of the deal, Google would place ads alongside some of Yahoo’s search results. The arrangement would allow both companies to control more than 80% of market share in search advertising.

According to comScore (NASDAQ:SCOR), Google’s web-search market share widened to 63% in August from 61.5% in June, while Yahoo dropped to 19.6%. Microsoft slipped to a distant third with only 8.3%.

Disclosure: None