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Yahoo announced that Google has decided to terminate its advertising partnership with Yahoo, “following indication from the Department of Justice that it would seek to block it, despite Yahoo!’s proposed revisions to address the DOJ’s concerns,” the Yahoo press release stated.

While I understand Google does not want to add another legal battle, does this mark a pull back on the part of Google from their previous aggressive acquisition and partnership agenda?

The press release went on to state:

While the implementation of the services agreement with Google would have enabled Yahoo! to accelerate its investments in its top business priorities through an infusion of additional operating cash flow, this deal was incremental to Yahoo!’s product roadmap and does not change Yahoo!’s commitment to innovation and growth in search. The fundamental building blocks of a stronger Yahoo! in both sponsored and algorithmic search were put in place independent of the agreement.

Hopefully this will not further impact Yahoo or Google’s stock prices. Yahoo had announced a possible partnership/merger with AOL earlier this week but the loss of the Google partnership may now jeopardize that as well.

Barron’s Eric Savitz reported this could lead to another Microsoft offer - though one lowered to $20 a share - which I doubt Yahoo would entertain.

Google and Yahoo have revised their search advertising partnership in the hopes of winning over the DOJ. Primarily, the deal has been reduced from 10 to 2 years and a cap has been placed that would restrict Yahoo to only being able to bring into 25% of their search advertising revenue from the deal with Google.

It’s unlikely that shortening the deal will qualm the fears of advertisers. Robert Liodice, president of the Association of National Advertisers, which opposes the deal, told the New York Times, “If a deal can’t survive long-term scrutiny, what’s the benefit of allowing it for the short term?”

Still, keeping Yahoo alive as the second place competitor in the search market is ultimately good for advertisers. As Mike Masnick over at TechDirt wrote, “We’re still waiting for a clear explanation of how this deal will actually negatively impact consumers, but some people still insist it will. For those who believe so, let’s ask a simple question: how is this any worse than Yahoo disappearing from the marketplace? Because if the company doesn’t do something soon that may be what we’re looking at.”

It turns out that the concern over the Google/Yahoo search advertising partnership is bipartisan. Earlier this month, Senator Herb Kohl (D-Wisc) urged caution in a letter to Assistant Attorney General Thomas Barnett.

Now, Rep. Joe Barton (R-TX) has written a letter to Barnett expressing his concern. Barton’s beef is with what he feels is Yahoo’s inadequate response to questions regarding the deal.

Barton represents a district that includes Fort Worth as well as suburbs of Dallas. The area is home to many search advertisers. It’s no surprise that Barton is raising concern on their behalf.

Google and Yahoo have tried to assure both the DOJ and advertisers that prices will not go up as a result of the deal, but fears remain. Both companies have said that advertisers set the pricing through the bidding process, but when you’re thinking about bidding for a term on the top 2 search engines, it’s understandable to think that prices will go up - even if Google and Yahoo do not set them higher.

What remains is uncertainty, which is not exactly comforting in a volatile economy.

Despite Yahoo’s decline in the search market as of late, some are beginning to cry foul, saying Wall Street is punishing YHOO just a little too much. Prices dipped below $11 a share this week, almost half the value when Microsoft made its acquisition offer for $31 per share.

A couple of points in defense of Yahoo:

1. Its decline in search market share is slight. They’re still #2. They’re comparable to the Apple of the search world if you’re just looking at the numbers.
2. The stock is being brought down by the greater market. Even Google’s stock is down to the mid-300s, despite beginning the year in the high 500s. But Google posted an increase in revenue and beat the pessimistic Street yesterday. Their stock is on the rise at this hour, while the Dow Jones is on the decline again.
3. They have a bunch of strong properties, including Yahoo Sports, which had a stellar August thanks to the Olympics. They’re also number 1 in email.

A couple of points in defense of Wall Street:

1. Jerry Yang is no Steve Jobs (or at least not anymore).
2. The search advertising partnership with Google has been delayed while they attempt to work things out with a wary DOJ.
3. The economy has everyone holding their wallets tight.

Jerry Yang and the gang need to refocus on the customer instead of executive bonuses, while Wall Street needs to understand that while advertising in general may decline, search advertising is an attractive option for advertisers looking to maximize budgets.

Oh, and in case you’re wondering, Microsoft remains a scorned lover.

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Google and Yahoo are attempting to avoid an antitrust lawsuit by working with Department of Justice on their search advertising partnership, according to the Wall Street Journal.

Details are vague, but the search engines are willing to put extra measures in place per negotiations with the DOJ in order to get the deal to go through.

Google and Yahoo have already delayed the implementation of the advertising deal, after going on offense in August and September about going through with the deal in October no matter what.

Related Reading:
Senator Kohl Wants Oversight of Google-Yahoo Deal
Yahoo Also Launches Site Defending Search Ad Deal with Google
Yahoo’s Sue Decker Weighs In on the Defense of the Search Ad Deal with Google
Google Launches Facts Site About Yahoo Search Ad Partnership
To Fear or Not to Fear: That is the Question (About the Google-Yahoo Ad Deal)

Senator Herb Kohl (D-Wis.) is okay with the Google-Yahoo deal, but he wants the DOJ to keep a close eye on the implementation. In a letter to Assistant Attorney General Thomas Barnett, Kohl, Chairman of the Judiciary Subcommittee on Antitrust urges:

Recognizing the nascent and fast-changing nature of this marketplace, we encourage the Department to continue to monitor the state of competition in this industry, whatever the outcome of its current investigation. If, over time, you determine that Google is gaining a dominant market position as a result of the Google-Yahoo agreement, then we would encourage the Justice Department to intervene to protect competition. Even should you conclude at present that this deal is not contrary to antitrust law, the Department must be sure that this deal never in the future crosses the line into an unacceptable, anti-competitive collaboration among competitors which will harm consumers and advertisers.

Kohl also acknowledged both the fears of advertisers and the assurances of Yahoo and Google. I think it’s prudent to let the deal go through, but to watch as the program unfolds to see if anti-competitiveness occurs.

What do you think?

h/t Reuters

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Sourcetools.com, a former business directory, was making $115,000 a month in profit until the summer of 2006, when Google changed its algorithm and spiked some AdWords bid prices for sites with “poor landing pages.” The business model was one employed by many an internet entrepreneur - bid on AdWords and slap some AdSense on the site.

Of course, Google calls this ad arbitrage if all you have is a made-for-adsense site. But Sourcetools provided a service - a business directory not unlike many other directories out there.

Sourcetools spent a ton of money revamping their site to make it to Google’s liking, not that Google was being terribly specific about what that liking is. But they could never get back into Google’s good graces, and now the domain sits service-less, and up for sale.

This is just one of the many complaints being sent to the Department of Justice as they conduct an investigation into Google’s ad deal with Yahoo.

Last week, the Association of National Advertisers sent a letter to the DOJ expressing their opposition to the deal. And the DOJ is taking the concerns seriously. They hired antitrust lawyer Sandy Litvack to consult on the deal.

Whether Google’s actions are an inadvertent breakdown in internal communications or intentional pursuit of power, they do appear to be monopolistic. That along with today’s financial news is a good reminder that to be wary of fast money and to diversify your site’s income!

via NYT

Seems Yahoo CEO Jerry Yang has made an end move to stop the bickering between the usurpers and his current slate of board members. They have offered Carl Icahn a spot on the new board along with another of his proposed new slate of candidates, according to the Wall Street Journal.

Very clever Jerry. Adding Icahn and former AOL Chairman and CEO Jonathan Miller is a good way to stop the schoolyard emails and press releases we have seen over the past month or so.

That shareholders meeting on Aug 1 should be interesting.