The proposed massive advertising deal between Google and Yahoo, first announced by the companies on June 12, continues to spark antitrust fears that may bring close scrutiny from U.S. and European regulators.
Under the terms of the deal, Yahoo will be given access to contextual advertising opportunities through the use of Google's Adsense for Search and Adsense for Content technology. In return, Yahoo agreed to supplement its own ads with Google ads, vastly expanding the potential reach of Google's advertising system.
By some estimates, Yahoo could earn as much as $800 million by offering Google ads alongside its own, money that the once-mighty Internet company desperately needs to fend off takeover attempts like the one recently launched by Microsoft.
Not surprisingly, Microsoft is one of the strongest critics of the proposed advertising deal. During an appearance before Congress in July, the company's general counsel, Bruce Smith, said that ""Never before in the history of advertising has one company been in the position to control prices on up to 90 percent of advertising in a single medium."
Google Denies Monopoly
In the past week, Google has gotten much more aggressive about defending its deal. In a blog posting Friday, Tim Armstrong, Google's president of advertising and commerce for North America, said the proposed advertising deal will enhance competition rather than hurt it.
"This agreement -- unlike Microsoft's proposed acquisition of Yahoo -- means that Yahoo will remain an independent company in the business of search and advertising," Armstrong asserted. "Yahoo has stated that it will reinvest the additional revenue from this agreement into improving its user services and competing vigorously against Google, Microsoft and other companies."
Armstrong also said Yahoo is committed to maintaining and operating its own ad platform, a prospect that will be enhanced by the revenues from its deal with Google. Moreover, Yahoo only plans to deliver Google ads on those pages that have few or no Yahoo ads anyway.
"The only way for an advertiser to guarantee placement for their ads on Yahoo," Armstrong said, "is to advertise through the Yahoo platform itself."
Google's periodic blog postings notwithstanding, many critics think the search-engine giant is not offering enough answers to satisfy monopoly and anticompetitive concerns.
According to Jeff Chester, executive director of the Center for Digital Democracy and a longtime privacy advocate, Google is failing "to develop into a company which honestly engages in self-examination and reflection."
The impact on Yahoo is much greater than Google is admitting, Chester argues. "Armstrong and Google aren't being candid here," he said. "When an online ad company dismantles (or turns over) a core part of its search function to its leading competitor, it becomes fatally wounded. Yahoo's future, in my opinion, as a full-service online ad company is endangered, as more businesses realize that its search-ad business relies increasingly on Google."
Other commentators have suggested that Google's statement that it is advertisers -- and not Google -- that determines the price of ads (and thus the revenues that Yahoo will share) is at best disingenuous. Among other things, Google sets the minimum price it will accept for a particular ad. Moreover, a closely held algorithm determines on what pages and how often each ad is served. Not only are the elements of the algorithm unpublished, but Google can and does tweak them without notifying advertisers who might be affected.
The list of public-interest organizations and Google competitors pushing for regulatory oversight is steadily growing, which may account for Google's increased advocacy on this issue.