Yahoo deal, not Google itself, is DOJ target

John Shinal · September 12, 2008 · Short URL: https://vator.tv/n/401

Decision on any trust-busting move to come within next few weeks

 Now that the U.S. Department of Justice has brought in an experienced antitrust litigator to help it examine the Yahoo - Google search advertising deal, it won't be long before we hear more from the DOJ.

In fact, sources with knowledge of the inquiry tell me that the government will decide what to do within the next few weeks.

The could decide to block the agreement, place restrictions on it or let it stand.

What they won't be doing is taking a broader look at Google's dominant position in the search market as a prelude to building an antitrust case, at least not right now, given the information they've been requesting from Google's rivals.

One person familiar with that process says the government has asked Google rivals for a huge amount of data, but all of it relates specifically to the potential effects of the Yahoo deal.

Given what we know and what's been reported, there's a strong argument that the DOJ will act.

First off, the DOJ is concerned with the impact the deal could have on advertisers and the rates they pay online. And several advertising groups have publicly expressed concern about the pact. The Association of National Advertisers, which includes big ad spenders like Coke, General Motors and AT&T, is among them.

By giving Google the ability to sell ads alongside Yahoo searches as well as its own, the agreement gives the company control of about 90 percent of the U.S. market.

That kind of market dominance will be hard for the DOJ to ignore, given its previous antitrust enforcement aimed at Microsoft. The software giant had a similar share of the operating system market when the DOJ sued it for its monopolistic practices a decade ago.

The image above is of Gates testifying during those proceedings.

The fact that Google CEO Eric Schmidt was at Sun Microsystems -- when it brought a private antitrust suit against Microsoft in advance of the DOJ suit -- surely isn't lost on the DOJ. Nor is the fact that Google complained to the government when Microsoft seemed ready to make its own search the default choice for its Vista operating system.

Operating under a judge's consent decree, Microsoft eventually let users keep their existing search preference. To ignore the Google deal in light of that history would be tough. Not impossible, but politically difficult, given the lobbying power that Microsoft and the big advertisers could bring to bear.

Finally, the decision by litigator Sandy Litvack to leave his position as a partner in the law firm Hogan & Hartson and join the DOJ --  rather than just consult on the probe -- signals that the DOJ plans to proceed with some type of action.

Yet winning an antitrust case could prove a tough challenge.

Prices for such ad buys will still be set by an auction, and Google superior search technology could well make advertisers more money than Yahoo's, as BusinessWeek's Rob Hof pointed out.

Second, it's important to remember that Microsoft wasn't found guilty of being an operating system monopolist per se, but of abusing its monopoly power to crush rivals in adjacent markets. Since Yahoo voluntarily signed the deal after turning down several Microsoft takeover attempts, it's hard to see how Google merely signing it could be seen as abusive.

The fact that Yahoo and Google are not merging, but merely pursuing a partnership that would boost Yahoo's sales and cash flow, would make it even tougher to win an antitrust case.

Yet with big advertisers weighing in, my bet is that the DOJ will, at the very least, throw advertisers a frikkin' bone by trying to extracting either some concessions from Yahoo and Google before the agreement is set to go live next month.

That could be something as simple as an agreement by Google and Yahoo to allow for some government review or oversight of the pact. 

In that sense, the hiring of Litvack can be seen as bolstering the government's bargaining power by showing that it's prepared to attack the agreement with heavy firepower should the two companies reject a request for concessions.

We'll find out one way or another soon enough.

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