Antitrust regulators to cast wary eye on Yahoo/Google deal

The online advertising deal between Yahoo and Google is sure to get a thorough looking-over by antitrust regulators. Even Google and Yahoo executives admit that -- they're delaying the start of the partnership by up to 3 1/2 months to give the Justice Department a chance to investigate. And the deal, which would team up the two biggest search engines, is already drawing complaints from some consumer groups (and that's before Microsoft starts its expected offensive against the arrangement).

So what are the chances the deal gets done? It's still too early to tell. But Google and Yahoo appear to have structured their partnership specifically to maximize the odds it won’t get derailed. They limited it, at least initially, to the United States and Canada, avoiding the tougher antitrust review of European officials. The deal isn't exclusive, so the companies are free to strike similar partnerships elsewhere (not that there are any great options). And although Google and Yahoo don’t need approval from the Justice Department, they volunteered to delay the implementation to give regulators a chance to review the plans.

Blair Levin, an analyst at brokerage Stifel, Nicolaus & Co., said he wasn't ready to predict the outcome of the Justice Department review. But he said Google's road map was smart.

"I think that they certainly understood there was going to be regulatory concern worldwide, and in that case better to have some small steps rather than roll it out big-time and face all kind of objections," he said this morning. "I think it's a staging strategy that makes sense."

But having to use such a strategy indicates the deal faces tough scrutiny, he said.

Google laid out its arguments for why the deal should not be halted in a post on its corporate blog by Omid Kordestani, senior vice president for global sales and business development. His main point for regulators was ...

... that although Google and Yahoo sit atop the search engines heap, the ad deal was no different than similar arrangements in other businesses that haven't been blocked. He wrote:

Toyota sells its hybrid technology to General Motors, even though they are the number one and number two car manufacturers globally. Canon provides laser printer engines for HP, despite also competing in the broader laser printer market. Google and Yahoo will continue to be vigorous competitors, and that competition will help fuel innovation that is good for users.

Google General Counsel Kent Walker told me this morning that the company was confident the Justice Department would give its blessing. Google and Yahoo just wanted to allow the department plenty of time to review the arrangement, given the questions from regulators when the companies ran a test of their plan this spring.

"We recognize it's high-profile and people are going to be interested in making sure they understand it. We could have rushed it out. ... It would have made it challenging," Walker said. "We didn’t want to jam anybody. We wanted to make sure they had a chance to review that in a way that’s careful."

The Justice Department is not commenting on the deal. But what may be working most in favor of Yahoo and Google is that if their arrangement is nixed, it could push together Yahoo and Microsoft, which would create a force in Webmail, instant messaging and other Net services. That tie-up would create its own set of antitrust problems, said Jeffrey Chester, executive director of the Center for Digital Democracy. He plans to fight the Yahoo Google deal aggressively, as he and others (including Microsoft) did unsuccessfully with Google's purchase of DoubleClick.

But Chester said he knows he's got a steep climb.

"Yahoo is asking for a government-sanctioned bailout here. The alternative isn’t favorable either, which is a Microsoft/Yahoo merger. So I think regulators and lawmakers are caught in a bind," he said. "I don’t think the Congress or the Department of Justice has the political courage to block" the Yahoo/Google deal.

-- Jim Puzzanghera

Puzzanghera, a Times staff writer, covers tech and media policy from Washington

Credit: Photo by Drama Queen, via Flickr