Google-Yahoo Deal Threatened

As the Department of Justice scrutinizes the proposed multibillion-dollar Google-Yahoo search ad deal, more and more advertising heavyweights are slamming the partnership and calling for Justice to kill it altogether. Last week, the Association of National Advertisers, a trade group whose member companies annually spend $100 billion in advertising, wrote a letter to the Justice Department recommending that the deal be rejected. Now the World Association of Newspapers, with membership of more than 18,000 newspapers around the world, has called on governments in Canada and Europe to block the deal. News of the opposition hasn't done Google's stock any favors; the price has dropped from $480 a share 10 days ago to $437 so far today.

The gist of the opposition is straightforward: The deal would simply make Google too damn big. Google and Yahoo already account for 90 percent of the search advertising market. If the deal, in which Google would post contextual ads around Yahoo search results, goes through, critics worry that the two companies would have a lock on almost all search advertising and inevitably charge an arm and a leg in a monopoly environment. Although an ANA spokeswoman refused to release the association's Justice Department letter, President Bob Liodice announced on the association's Web site, "The partnership will likely diminish competition, increase concentration of market power, limit choices currently available, and potentially raise prices to advertisers."

The World Association of Newspapers went even further, suggesting that the deal was a naked attempt at price-fixing. "Today, Google typically charges more than Yahoo for the same paid search ad-between 20 percent and 35 percent more on average, according to industry estimates," read a communiqué issued by the group. "So newspapers that now purchase ads from Yahoo to attract readers will in the future be forced to buy these very same ads from Google-except at a substantially higher price. Indeed, a recent study found that prices on Yahoo will increase by an average of 22 percent under the deal."

Google spokespeople weren't immediately available for this post, but company representative Adam Kovacevich told the Wall Street Journal, "Advertisers care far more about getting a good return on their advertising dollar than they do about buying cheap ads that don't bring in customers." Doesn't exactly sound like Google's planning to knock the ad price down anytime soon.

This is hardly an opportune moment for Google to butt heads with so many of its own clients. Attorneys general in 11 states are pursuing their own investigation of the deal. The Justice Department has hired Sandy Litvack, a former antitrust chief with a reputation as a tough-as-nails litigator, to oversee the Google-Yahoo arrangement. And CNET reports Justice may ultimately expand the investigation to include asking whether Google illegally distorts the search marketplace, even without the Yahoo deal.