Yahoo Deal Dead Next Week?

That's what the Wall Street Journal is floating. A story this morning reports that Yahoo and Google have not been able to agree to Justice Department conditions for approving their multibillion-dollar search ad deal and will scrap the whole proposal in the middle of next week. (Although, just in case they're wrong, they also suggest the deal could be saved next week as well. That's a particularly odd qualifier.) What will finally kill the deal? It's not Microsoft, or the army of advertisers that have denounced it, or even the reported Justice Department conditions that Yahoo cap the volume and possibly price of ads. It's the enforcement of any conditions. In order to get the green light from Justice, both parties would reportedly have to sign a consent decree, which would give a judge the power to peer into the companies' internal business to confirm that they are living up to their promises. For the secrecy-obsessed Google, this has got to be a dealbreaker.

Kara Swisher suspects Google floated this story to the Journal to send a message to Justice: Start giving a little ground, or we'll move on, and you can explain to the public how you let Yahoo die. "Google is ... sending a very public signal to the Justice Department that it would walk if pushed too far and leave regulators with egg on their faces for not letting the search giant help the struggling Yahoo," she writes. Henry Blodget doesn't think much of this tactic: "Who, exactly, is going to complain to the Justice Department about blocking the Google-Yahoo deal? Yahoo shareholders? Not a particularly powerful constituency."

In any case, Yahoo will probably have little choice but to meekly accept a considerably less generous offer from Microsoft for its search business and hope some scrap yard will take the rest of the company. ZDNet editor-in-chief Larry Dignan resurrects the theory that Google dangled this deal in front of Yahoo only to put off a Microsoft marriage for a year or so, buying time to snatch up more market share and weaken its rivals a little more before they finally wake up and join forces. Now, he argues, that grim task is accomplished. "The Yahoo deal won't materially affect Google's earnings and revenue," he writes. "And Google's search rivals—Microsoft and Yahoo—are both weaker today than they were a few months ago. Google's job is done. Back away from the Yahoo deal gracefully."