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Web search leaders Google and Yahoo have formulated and submitted a new agreement outlining their advertising partnership to the U.S. Justice Department. The companies have been subject of discussion due to Google gaining too much power in the competitive online search market, hence the Justice Department has been investigating whether the GOOG/YHOO partnership would lead to imperfect competition and further extend Google’s lead in the market.
Apparently, and I wouldn’t have expected anything else, the U.S. Justice Department found signs of unfair advantages for Google and Yahoo, because the companies have now changed their partnership agreement in order to please the competition watchdogs.
Formerly, the ad deal should have been valid for ten years, but that duration has now been reduced to two years. In addition, Google AdWords clients will now have the choice to opt out of Yahoo’s advertising network.
To be honest, I don’t see how these minor changes could allow for a better market environment. Google would still gain another significant percentage of the worldwide search advertising market, and the traffic and advertising value of Yahoo’s portal and search engine is not to be underestimated!
I understand that Google and Yahoo are still in talks with anti-trust regulators, so more changes could be made to the agreement soon. The fact that the search engine companies have been willing to cooperate with the Department of Justice will certainly improve their chances of getting the ad deal approved.
In the meantime, billionaire investor Carl Icahn, who owns five percent of Yahoo and is a board member of the company, is still publicly pitching Yahoo’s search business to Microsoft. At least, he wants Yahoo to enter into a paid search deal with Microsoft instead of Google. The Redmond-based software giant has made numerous offers for Yahoo in 2007 and 2008, most of which valued the company significantly higher than its actual worth in the stock market at that time, but those offers were rejected. For example, Microsoft offers to buy Yahoo for almost $50 billion earlier this year. Since then, Yahoo’s stock price has fallen almost 50 percent. Yahoo’s market cap is below $19 billion today.
The outcome of the search advertising deal between Google and Yahoo could influence MSFT’s decision to make another bid for YHOO. If the deal gets rejected by the Department of Justice, it’s possible that Yahoo will try to enter into a partnership with Microsoft instead, which could ultimately lead to the company’s acquisition.
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