Google: Regulators Will Be Fine With Yahoo Search Deal

pipen said:

actually, yahoo may able to auction its search monetization volumn
as long as msft could more money than google on those search monetization volumn, I think yahoo could sell its volumn to msft.

bobthegreat said:

Apr. 25, 10:23 PM

Blair Levin, who knows one thing or two about media and telecom regulation (he was Reed Hundt's chief of staff) disagrees. He has written multiple times about the reg. issues GOOG/YHOO deal would face. And my own conversations with respected anti-trust lawyers in the US and in Europe are consistent with his view.

Of course GOOG would say it is all fine! What did you expect?

Henry Blodget said:

Apr. 25, 10:29 PM

Do you have links to Blair's stuff? I'd like to read. Far from an expert on this, but based on my understanding of the law, I do think there are reasonable arguments on both sides. That doesn't guarantee a victory on either side, but I think it makes it likely that any legal process would drag out for years. (At which point it won't matter).

Yes, of course Google would take that position. Just as Microsoft takes the other one.

joeblow said:

Apr. 25, 11:51 PM

You can't force individual participants in search, or paid search advertisers, from acquiring boats that float.

Google builds boats that float.

Yahoo's boats don't float.

Microsoft's boats don't float.

You can't make people buy boats that won't float.

Justice will not prohibit Yahoo from partnering with Google when the partnering gives Yahoo's search participants and paid search advertisers boats that float.

How long will it take for people to understand this? Justice will not deprive consumers or advertisers from boats that float. Regardless of market share.

Were Yahoo's and Microsoft's boats to float on an equal basis with Google's boats, then Justice probably WOULD intervene to block some key level of market share from being either met or exceeded by partnering or mergers between any two (or all three) of these dominant players in search. Of course using the word dominant about Yahoo or Microsoft, especially with Microsoft's share, is sort of funny, but it is true that these are the big three (haha, it's still funny!... Microsoft, dominant! 5% - haha).

The point is that Justice WOULD intervene if a partnership or merger were to concentrate market share in one dominant player's control, but only when all members of the partnership build boats that equally float. Because, then, consumers would gain no likely advantage and the concentration would only cause a risk of anti-trust abuses. There would be no mitigation for allowing the concentration.

However, the vastly proven superior relevancy of Google's paid search advertising (Decker disputes this, but she'd have to prove Yahoo's relevancy is equal to Google's) and its superior productivity for paid search advertisers MITIGATES anti-trust issues related to their partnering with ANY OTHER paid search provider.

Otherwise, Justice would be intervening to prohibit efficiences for MARGINAL consumers in a discriminatory manner.

Think of it this way:

Suppose you could only buy cars with automatic transmission and power windows from just ONE manufacturer, and all others only sold cars with manual transmissions and hand-cranked windows.

Justice WOULD **not** deprive consumers of automatics and power even if it meant allowing that one manufacturer to maintain a monopoly.

Justice will not prevent consumers from having access to boats that float.

That's exactly what they'd be doing if they prohibit any consumers from having access to Google's superior algorithm and its superior relevancy and productivity, even if it's only because the consumer would choose to have it linked on their own favorite portal homepage. That would be like depriving a consumer from having a phone in his own house, but rather forcing him to go to the neighbor's house to use the phone.

It may be hard for people to understand, because their focus is on **market share** as being an automatic trigger for mandatory anti-trust intervention. It's not when there are mitigations.

I actually suspect that even an exclusive partnering agreement between Google and Yahoo would not be easily blocked by Justice. Punditry on the fly by a congressman is one thing... Backing it up under the law is another.

It would be as rational for Justice to force Yahoo and Microsoft both to partner with Google as it would be for them to prevent partnering.

In one core sense, regarding the benefit to consumers, Google simply owns the Keys to the Kingdom right now, and it's as though from an anti-trust perspective that they can't simply be blamed for owning them.

L Ferguson said:

Apr. 26, 11:34 AM

Henry,

You should get Joe from out of the comments and let him handle some of the analysis. I have to admit that I've spent the last few days continously checking to see what take he has in everything that's been going on and I doubt that I'm the only one.

Anon said:

Apr. 26, 11:48 AM

Lets assume that the regulators don't take issue and Google starts powering Yahoo's search. At that point I would think Google's US search market share would be sufficient to label it a monopoly in that space. From Microsoft's tussles with the regulators, it would appear that bundling free services is illegal for a monopoly, but perfectly fine for everyone else. Would this imply that google can no longer use google.com to provide additional free services, whether gmail, maps or docs?

Rav said:

Apr. 26, 3:31 PM

I would argue that if GOOG is offering some way to monetize search traffic to AOL and IACI, and denies that same way to YHOO and MSFT, then it could be considered collusion and is anti-competitive. In this case, what they are offering to YHOO is same as what they are offering AOL and IACI. I'm sure they won't have any problems if MSFT wants the same deal. I guess this is what they mean by "non-exclusive". With this is mind I don't understand how DOJ can argue that the deal is anti-competitive. In fact if YHOO can monetize its traffic better using GOOG then it can give a better return to advertisers and publishers on its properties and strengthen its competitive position.

joeblow said:

Apr. 26, 4:58 PM

Thanks L. Ferguson.

Anon,

What you ask is a reasonable question. I've never said that an allowed monopolist still doesn't have the potential to abuse it. Certainly there might be modifications required to structured services in certain situations.

But Google's offering the services to willing participants for free. Now if a monopolist bundles services it would ordinarily charge for, as an inducement for customers to ignore its competitors' products, or worse, caused the customers to take adverse actions against its competitors, then they'd have an anti-trust problem.

All I am saying is that Justice will not deny equal access to productivity and efficiences (these are natural drivers of GDP) for consumers when they can only be provided by a monopolist.

From my earlier post it ought to be clear that the differential in efficiency and productivity between Google's paid search advertising and that of both Yahoo and MSFT is in almost every way like the differential between having a car with an automatic transmission and power windows when compared to even a less expensive car with a manual transmission and crank windows.

Let me ask you this question. If Yahoo and its customers (both paid search advertisers and regular search participants) is denied the association with Google, how can you rationalize that AOL, IAC and their customers as well should be?... I mean it's a tough question isn't it?

Would you set yourself up as a tyrant and deny customers on some rational that you alone possess?

How would the economy, society, access, productivity and efficiency be improved with you edict?

The point is simply too profound. Google is the only boat builder that builds boats that float. Even on a relative basis, you must be able to understand that. Don't you?

joeblow said:

Apr. 26, 5:04 PM

Anon,

Let me make a statement more clear:

If Yahoo and its customers are denied access to Google's superior product, how can you justify not denying it to AOL's and IAC's as well?

Anon said:

Apr. 26, 6:30 PM

joeblow,

I completley agree that there does not appear to be a legal impediment to a Google powered yahoo search. Rather I am questioning if it in Google's best interests to be labeled a monopoly, which it likely will be. If you are running Google, would you prefer to garner the extra market share and corresponding profits from Yahoo, even if this constrains the nature of any other products/ services you might want to deliver at a later stage? Or would you let MicroHoo keep some marginal market share just to retain complete freedom in any new products or services you might want to bring to market? Did not Microsoft invest in Apple - a while back, yes - to keep it alive so that Microsoft did not gain 100% of the desktop OS market?

Appreciate your thoughts.

joeblow said:

Apr. 26, 7:30 PM

Can't argue with your points, Anon, but we're drifting off the subject.

The matter at hand is Yahoo partnering with Google for paid search, nothing more. I say it'll fly and Justice won't stop it.

By the account of at least one analyst (can't remember), Google is on the way to 90% plus market share in paid search anyway, whether they partner with Yahoo or not.

If MSFT and Yahoo can't improve their productivity provided to their paid search advertisers, it's no wonder that Google is headed there. Google isn't worried about being a monopolist. You use it like a dirty word.

They will avoid anti-competitive practices that would get them into anti-trust hot water, but I don't think they're worried at all.

Notice that they remark that the deal is non-exclusive with Yahoo. You think they care?

They figure they'll eventually gain monopoly status because search participants and paid search advertisers will desire the exclusivity with THEM, not them needing it with their portal partners.

It's as simple as this: They own the Keys to the Kingdom right now. Justice can't intervene to prevent them from enjoying it any more than they could've prevented Newton from enjoying gravity.

MSFT, Yahoo and all the rest are free to develop or improve algorithms that can unseat them. There are no bars to entry for new competitors... You, Anon, could this very day launch your own search algorithm. Nothing says it couldn't storm the world just like Google's did. After the storm, you could monetize it, just like Google did. Google is not coercing customers that we've heard of, nor have them been accused of price fixing.

They just own the Keys, Anon... and Justice won't have anything to say about it.

Sprague Dawley (URL) said:

Apr. 26, 10:54 PM

Joe -

How is Google colluding with Yahoo to restrict Microsoft's search marketshare different from Microsoft colluding with OEMs to keep competitors out of the PC market?

Or would you say that back in the 90's Microsoft's competitors were free to develop a parallel desktop ecosystem..?

bobthegreat said:

Apr. 27, 4:55 AM

User beware:

I have been in the media and telecoms industry for a long time. I have learned in the hard way (from guys like Reed Hundt) and the not so hard way but equally brilliant (from Bill Kennard) that amateurs' opinions about regulation (including anti-trust) and its enforcement - or its legal and political aspects - are worth nothing. Everyone believes they can have an educated opinion worth something about these topics. It is just false.

So, my suggestion to te readers of this blog is that if they want a meaningful view on the odds of different goog/yhoo deals, they should ak real antitrust lawyers with real washington experience.

bobthegreat said:

Apr. 27, 5:00 AM

Henry:

You asked for links to Blair Levin's analysis of the antitrust issues associated with GOOG/YHOO. I dont think his reports are available over the net. But he published reports on 4/11, 4/18 and 4/25 which deal with the topic. He basically says that full outsourcing is a no-no fro reg/antitrust standpoint, but experiments are likely to continue because it is difficult for DOJ to establish a bright line re: experiments.

b

joeblow said:

Apr. 27, 5:47 AM

bobthegreat,

That's what makes it a wonderful country. You can freely express your opinion that the opinions of amateurs are moot. Well, I've got you some moot right here, Big Daddy, so read up... and then you can try to out-moot me if you think you can. I'll be here waiting when you're ready. And, bring along with you this guy you mentioned, Blair, and his "no-nos" as well, Maybe Blair wants a piece of me. Nobody else has rocked my boat much. Ask him to meet me here on this worthy blog. Anytime. He can go first.
--
Sprague, I'm really setting you up in the following piece as the straw dog to represent an argument I only consider your remarks to suggest you'd make. I don't mean that you necessarily would make that argument, but this is the rebuttal I'll make to that argument, whether you are making it or not. It is the argument that might be common among those who think Yahoo's deal with Google would violate anti-trust regulations.
--
(begin)

First I think that “colluding (collusion when facilitating anti-trust violations)” would have to be proven to have occurred between Google and Yahoo before it would have any bearing on the DOJ “Justice” blocking a partnering agreement between the two. I assume you are of the opinion that their phone communications represented collusion, since it forms the basis for your analogy. I don’t expect that to turn out to be the case but it would be Justice’s opinion that prevails.

We’ll find out as soon as we get some word about the inquiry reportedly being conducted on the matter of those phone calls. You would have to agree that collusion would be tough to prove since Google and Yahoo have both said they informed Justice that the contact(s) would be made, and Justice has confirmed that they were made aware.

My guess is that Google and Yahoo both well understood that the focus on their phone communications would look to intent, and they probably recorded, witnessed and documented the calls for the purpose of proving that a potential agreement between the two of them was not being contemplated for the purpose of excluding MSFT from market share in paid search, but only to make available to Yahoo the same opportunities that Google was making to other large Internet portals such as AOL and IAC.

Any business entity contemplating any conduct of commerce is inherently at the same time contemplating depriving its competitors of that same commerce, but it’s the power it might have to coerce others unfairly that is the problem in anti-trust matters, not the natural tendency to out-compete for profitable gain. Were the latter the case, every business entity would be colluding with any of its customers or partners every time it made contracts or agreements with them.

To my knowledge there have yet to be any complaints that Google is coercing its customers, partners or voluntary search participants in any way or restricting them from opportunities to use the services of or partner with Yahoo or Microsoft if they wish, nor have they taken any actions to prevent Yahoo or Microsoft from developing or enhancing their search technology. If you know of any complaints on any of these fronts, tell us about them.

This is the case I made (and offered challenges on several topics in this blog to all comers to defeat my contentions) long before Google has just recently commented (the basis of this topic) on their optimism that their partnering with Yahoo would not violate anti-trust concerns. Indeed it won’t in my opinion. You have provided the latest challenge, but you have not proven your contention.

Consequently, you have no basis to construct an opinion that Google is now or has ever been an anti-trust violator, and thus the whole preface of your argument: in other words (rephrasing your words) “How would this not be collusion the same as MSFT’s collusion?” is at least currently defeated at the out-go.

By all accounts of the DOJ actions taken against MSFT, the second part of your argument’s basis is correct. MSFT was found to have used tactics with its OEMs to prevent them from cooperating with MSFT’s competitors for browser market share. You can read the entire case here:

http://www.usdoj.gov/atr/cases/ms_index.htm#settlement

I take from it the “Findings Of Fact” found here:

http://www.usdoj.gov/atr/cases/ms_findings.htm

Specifically find (V.)(F.)(2.)(a.)(ii):

“Microsoft’s Actions” numbered 155 and 156, quoted [entirely below]:

[155. In contrast to other operating system vendors, Microsoft both refused to license its operating system without a browser and imposed restrictions — at first contractual and later technical — on OEMs' and end users' ability to remove its browser from its operating system. As its internal contemporaneous documents and licensing practices reveal, Microsoft decided to bind Internet Explorer to Windows in order to prevent Navigator from weakening the applications barrier to entry, rather than for any pro-competitive purpose.

156. Before it decided to blunt the threat that Navigator posed to the applications barrier to entry, Microsoft did not plan to make it difficult or impossible for OEMs or consumers to obtain Windows without obtaining Internet Explorer. In fact, the company's internal correspondence and external communications indicate that, as late as the fall of 1994, Microsoft was planning to include low-level Internet "plumbing," such as a TCP/IP stack, but not a browser, with Windows 95.](end)
--
So, what were the unfair monopolistic actions taken that are described in those two numbered findings?

Microsoft required its OEMs (155) to load its browser as a bundled element of its Windows operating system without additional charge for the browser. That was not necessarily a violation of bundling abuses since bundling often enhances end-user affordability and efficiency.

That’s part of but not entirely the reason they bundled. They would not license the individual OEMs to install Windows at all (can you imagine a IBM-PC-bred computer maker trying, back then, to sell a computer without Windows 95 installed?) if they refused this arrangement. Further, they contractually and later technically prevented the OEMs from installing devices that allowed their customers to remove MSFT’s browser in favor of the installation of an alternative browser (NetScape Navigator generally).

Finding number 156 just confirms that the actions of finding number 155 would not ordinarily have been taken, but were taken specifically in order to coerce its OEM partners to actions that would restrict the successful distribution and use by customers of browsers that compete with Microsoft’s Internet Explorer.

Even then Microsoft was already being alerted to the threat that Internet based platforms could eventually threaten their op/desktop monopoly that ordinarily did not suffer significant competition from conventional means of distribution in which Microsoft dominated in almost every way. They were right and they're up to their ears right now in the practical realization of the consequences of that fact.

Thus, Sprague, those actions were found by the Judge in the case to ultimately deprive consumers of choice and the efficiency of a competitive popularly used browser, simply because MSFT had the power over its OEMs to force them to assist MSFT, under the threats of losing their license to install Windows (an effective commercial death sentence), in preventing that choice.

But that’s all changed now, since Microsoft had no leverage to prevent Google’s spectacular success even as consumers flocked to Google’s search engine and did so mostly through access using Microsoft’s own browser. Thus Microsoft’s great power was for the first time in its history being used against itself and, furthermore, also in ways that it could not intervene against to prevent.

Finally, Google and Yahoo apparently intend to partner to: 1)- provide productivity to Yahoo that is not otherwise restricted from other similar portals, and 2)- to provide (in turn) the same productivity to Yahoo’s search participants and paid search advertisers that is not otherwise restricted from the customers of those same other similar portals. For this mitigating reason, Justice will not intervene to block a partnering agreement between Google and Yahoo regardless of the subsequently attained market share by Google in paid search. I additional contend they would not intervene even to block a full merger, but that is not the matter under discussion in this topic.

Sprague, I must therefore respectfully submit that your argument is without merit.
--
Who would like to be next?

joeblow said:

Apr. 27, 6:41 AM

bobthegreat,

Here's a question that I don't think you can answer in a manner that would favor the argument you seem to make. I truly believe that you would stumble over it and come to the only conclusion that can derive from the logic I'll present. Here it is:

-Google partners currently with AOL and IAC (if not other portals/Internet ventures) in paid search.

-You suggest partnering between Google and Yahoo should be prevented for anti-trust reasons.

-You therefore would support disinfranchising not only Yahoo via its commercial productivity opportunities, but also its own paid search advertisers and voluntary search participants (its two classes of customers, paid and voluntary) from a source of productivity and efficiency they can get no-where-else, all for the assumed benefit of preventing anti-trust concentration of market share by Google.

-Would you therefore be opposed to depriving the same for AOL and IAC and all their two classes of customers as well?

-If you would be opposed, how can you find your intentions do not qualify as discrimination between both commercial enterprises and public consumers? I mean, either you can discriminate or not, and if so, either you can defend it or not. What are your intentions in both of these matters?

I conclude that you can't discriminate, but only because all the entities represented (AOL, IAC, and Yahoo... indeed, even Microsoft if it wished) can not achieve the productivity and efficiency for either themselves or their two classes of customers in ANY OTHER WAY than by partnering with Google.

I don't care what Blair Levin or anybody else would say, whether they've run a telecom giant or my corner community convenience store, they won't change that logical conclusion.

Now, if you're saying that the DOJ could not be prevented from action in a discriminatory manner, then I can't deny that possibility. But it is highly unlikely and it would become even more unlikely were the matter put to the test of formal proceedings.

The reason, bobthegreat, is because of the ultimate truth that Justice can not and will not force consumers to buy boats that won't float.

Google's boats float. They are the ONLY boats that float.

Sprague Dawley (URL) said:

Apr. 27, 10:14 AM

Joe-

Whew! You give good comment.

I'll think more about your argument, but will just say here that I think that Google is becoming the (de facto) ecosystem for search advertising on the net and the Yahoo Hail Mary just confirms that. If they are in a position to deprive search ad "oxygen" to a player as big as Microsoft then they can effectively shut out any other competitor in that space.

Analogous to Microsoft depriving consumers of choice, Google dominance deprives advertisers of choice. By your reasoning, their only hope is that a disruptive technology comes along (in 5 or 10 years) to unseat Google. But what happens until then?

joeblow said:

Apr. 27, 11:28 AM

Sprague,

Read my commentary here that was posted at 3:09 AM regarding Yahoo's earnings conference call:

http://www.alleyinsider.com/2008/4/live_analysis_yahoo_q1_earnings_yhoo_

Afterward I don't think you'll still assume that Yahoo's possible deal is a Hail Mary, and I've also addressed your concept of a threatened disruptive technology.

Decker actually opens that topic up in terms of what she generally termed as an open source search initiative offered by Yahoo to its spectrum of paid search advertisers, and others really. Listen to her comments in the CC and listen for the concept "Search Monkey."

To my mind, that is the destructive technology that might make all search algorithms equal in capability as measured in relevancy.

What if they were all made to be commodities?... Don't think it can't happen.

So, it's a two edge sword for Google to do joint business with Yahoo. Yahoo is not about to shut down its R&D in general search or in the relevancy of paid search... and Yahoo is opening up a mechanism that might eventually neutralize Google's search advantage.

In the meantime, for however long the deal were to last, Yahoo will just rake in marginal net income from the deal with Google.

It's Kismet!

bobthegreat said:

Apr. 27, 6:23 PM

Joeblow:

As I mentioned before, I am just an amateur when it comes to anti-trust law, even though I have a law degree. I believe that if I were to engage in a content exchange with you (or anyone else) about the antitrust issues of a potential YHOO/GOOG partnership, I would be doing exactly what I believe is moot, i.e., contributing to an amateurish discussion of a highly complex issue. I am not saying YOU or your arguments are amateurish (who knows? maybe you have 20 years of media and telecom antitrust Law experience...), but my opinions and arguments on the topic are. I can also write about quantum mechanics, the uncertainty principle, and unified field theory, and be funny, articulate, sound logic and I am sure I would be naive and probably and completely wrong.

For example, I could argue that because GOOG partners with AOL and IAC and controls so much of the search market (directly and/or through partnerships), an additional partnership with YHOO (its main competitor currently) would lead to a market concentration that would trigger severe antitrust questions. But I won't get into this argument, because I took antitrust law almost 20 years ago, have not worked in the field, and I recognize that I am not competent to think correctly about this.

So, I resort to listening to a few people whom I believe have real expertise on the issue (and forgive me, but this set does not include any Joe Blow), and they tell me the partnership wont fly with the DoJ. In addition to that, some people who have real expertise happen to write publicly about the topic, and they say the same. I only pointed it out to whomever wanted to know.

But frankly, I dont care THAt much!

bobthegreat said:

Apr. 27, 6:23 PM

Joeblow:

As I mentioned before, I am just an amateur when it comes to anti-trust law, even though I have a law degree. I believe that if I were to engage in a content exchange with you (or anyone else) about the antitrust issues of a potential YHOO/GOOG partnership, I would be doing exactly what I believe is moot, i.e., contributing to an amateurish discussion of a highly complex issue. I am not saying YOU or your arguments are amateurish (who knows? maybe you have 20 years of media and telecom antitrust Law experience...), but my opinions and arguments on the topic are. I can also write about quantum mechanics, the uncertainty principle, and unified field theory, and be funny, articulate, sound logic and I am sure I would be naive and probably and completely wrong.

For example, I could argue that because GOOG partners with AOL and IAC and controls so much of the search market (directly and/or through partnerships), an additional partnership with YHOO (its main competitor currently) would lead to a market concentration that would trigger severe antitrust questions. But I won't get into this argument, because I took antitrust law almost 20 years ago, have not worked in the field, and I recognize that I am not competent to think correctly about this.

So, I resort to listening to a few people whom I believe have real expertise on the issue (and forgive me, but this set does not include any Joe Blow), and they tell me the partnership wont fly with the DoJ. In addition to that, some people who have real expertise happen to write publicly about the topic, and they say the same. I only pointed it out to whomever wanted to know.

But frankly, I dont care THAt much!

joeblow said:

Apr. 27, 7:14 PM

bobthegreat,

I'm an amateur as you are. I appreciate your views.

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