The Justice Department has hired Sanford Litvack, described as one of the nation's top litigators, to determine whether the government should begin antitrust proceedings against Google's planned deal with Yahoo to share advertising revenues from online searches done on their respective sites, according to the Wall Street Journal.
While not an out-and-out acquisition, the partnership would give Google the right to sell search and text ads that appear on Yahoo. On Google, Yahoo and elsewhere, such ads typically appear atop the page in a highlighted field and in a right-hand column alongside the search results. Google, as we know, has done the most with search engine advertising (and overall search technology) in the past five years. It has been rewarded with a 76.6 percent share of spending in the search engine ad market, according to research cited by the Journal.
Yahoo commands 17.9 percent according to the same study. The Yahoo deal means Google would have a stake in more than 93 percent of search engine ad spending.
This has trade groups such as the Association of National Advertisers, which represents the country's top ad buyers, worried that the deal is anticompetitive and will result in higher advertising rates on the Web. ANA sent a letter to DoJ last week asking it to block the deal.
DoJ needs to tread carefully. The fact that a Google-Yahoo agreement may raise the prices of Web ads is not in itself a cause for litigation. Up to now, the web has largely been an ad buyer's market. As someone who part of the time, is involved in publishing, I can attest that selling Web ads as a premium is hard because unlike print, results are harder to track and quantify. Although less so than in the past, a lot of Web ads are still "loss leaders." While a situation like this sometimes can be the result of market forces, we should be careful about using antitrust law to prevent the same market forces from catalyzing change.
Google may have hit upon the right way to monetize Web advertising, making it work as a business model while creating value for its own shareowners, and doing a better job bringing advertisers and their desired targets together. If a Google and Yahoo tie-up increases the overall benefits consumers see from Web advertising, it trumps any higher prices that Google can ask. Not that higher rates are by any means a given.
In fact, not all advertisers agree with ANA's position. Some large advertising agencies and midsize advertisers have endorsed the deal, the Journal reports, saying they think it will make advertising on Yahoo more effective. And search engines aren't the only places to advertise online. Heck, online isn't even the only place to advertise. And groups that purportedly represent consumers, the Free Press, Consumers Union and Consumer Federation of America, which have never been shy on speaking out against other media consolidation efforts, so far have been quiet on the Google-Yahoo deal.
Still I fear we're headed for another pointless battle brought on by the pace of change in Internet and Web commerce. Regulators must understand that the search engine segment, although just a few years out of start-up, is already maturing. We are moving from an environment of experimentation aided by oversupply (which allowed so many aspects of search to be offered "free") into an era where business models have begun to prove out. Although not so long ago, the market seemed to be able to support dozens of search engines, Google, taking its share of the risk, turned out to have the winning approach. Its success was not arbitrary. In terms of finding what you want fast, Google has brought Web searches a long way in just 24 months.
Recall when Google went public, snarky analysts questioned how the company actually planned to make money. That reflected the big question on everyone's lips both before and after the dot-com bust, "Can anyone monetize the Internet?" Google succeeded wildly where many others failed. Too bad that, just as IBM and Microsoft in the past, the government's first reaction is to want to sue the pants off them.