Google-Yahoo deal and antitrust questions

By September 12th, 2008

Yahoo Google Department of Justice (DOJ)The Google-Yahoo deal announced three months ago is running into some trouble, from advertising trade associations that contend that the deal violates U.S. antitrust laws. They got the attention of the U.S. Department of Justice, who hired veteran antitrust attorney Sanford Litvack to review the evidence and see if the DoJ has case with which to block the deal. As was the case when the DoJ went after Microsoft a decade ago, murmurs have started bubbling through the blogosphere that Google is simply too successful for its own (or, rather, our collective) good.

What exactly is the case against the deal? It’s useful to remind ourselves why antitrust legislation exists. It’s not to punish successful companies. It’s in place to prevent companies with considerable market power from harming both consumers and entrepreneurs. A monopoly can use its dominant market position to charge more to consumers because there aren’t enough competitors to bring down pricing to market-determined levels. And a monopoly can exert its power to shut entrepreneurial competitors—which usually act as the wellspring of innovation—out of the market. The end result of unrestricted monopoly is a reduction in market efficiency, and, more long-term, the technological decline of an industry where the dominant player sees more benefit in muscling out competitors than investing in innovation.

Whether this scenario is the case with respect to Google remains to be seen. But as it’s portrayed by the litigants, Google already dominates the search advertising market, and working with Yahoo brings no. 2 into its fold. Google is not known for transparency with respect to how much of a cut it takes from advertisers, the gap between what advertisers pay via AdWords and what Google pays out to publishers via AdSense. Competitive forces would force Google to pare down its share to a minimum, in order to entice advertisers to spend with them. But without viable competitors, Google can take as large a chunk as it wants, and advertisers will simply have to pay to play.

How much does Google control?

  • A study by Attributor in March shows Google serving ads on 35% of ad-supported Internet traffic (double that if you include DoubleClick).
  • Our own survey of the top 100,000 sites by traffic shows about 60% of ads on the front page are served through Google.
  • Search advertising is projected to be a $10.4 billion market this year, and continues to enjoy double-digit growth rates

The months ahead will see a decision by the DoJ on whether to pursue action against the Google-Yahoo deal. Then we’ll see whether the US government sees Google’s future growth as fueled by its own (or acquired) innovation or deft strategy, or through limiting inroads to the sizeable search ad market to its competitors.

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This entry was posted on Friday, September 12th, 2008 at 3:16 pm and is filed under Online Advertising. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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