Washington — The advertising partnership between Google Inc. and Yahoo Inc. faces the stringent criticism and delays. The two Web search titans seem to prefer scrapping their plans for a strong and rich partnership than accepting government-imposed antitrust restrictions on it, two sources close to the companies’ discussions on the subject told Reuters.
“Are they more serious about walking away? Yes. Have they decided? I’m not sure,” one source told Reuters on Friday.
“Yahoo wants the deal, and they are willing to have Google sign anything at the Justice Department to have them do it,” said the source.
A second source said that Google and Yahoo, Nos. 1 and 2 in the Internet search market, could announce as early as Friday that the deal had fallen apart.
A proposed partnership between Google and Yahoo for the sale and distribution of online advertisements has been a sizzling topic in tech circles this year, drawing scrutiny from privacy groups, European regulators and the Justice Department. Now reports are circulating that the long-delayed deal might fall apart.
In an article in the online version of the Wall Street Journal, reporter Jessica Vascellaro stated that according to “people familiar with the matter,” the companies might walk away from the deal as early as next week.
Failure of the partnership has grown more likely as Google and Yahoo meet with the Justice Department last week to resolve unending regulators’ concerns. “While the parties may agree to continue the talks — or they could reach a resolution — there are signs they are unwilling to make compromises to address the Justice Department’s objections,” and reports are indicating that Google may want to walk away from the proposed ad deal, Vascellaro reported.
“If Google walks away from the deal, Microsoft may be waiting behind the scenes to buy Yahoo.”
The partnership was agreed as part of Yahoo’s defense against an unsolicited bid from Microsoft but has run into opposition from industry associations representing both advertisers and newspaper groups, which object to a link between the two biggest search advertising companies.
If it falls through, Yahoo would lose the best option for boosting its performance in the short-term, making it likely it will have to turn to other strategic options, according to analysts.
“A Microsoft search deal would be the next best option,” said Youssef Squali, an analyst at Jefferies in New York.
Representatives of both companies said that dialogues with the Justice Department are continuing, but otherwise declined to discuss the specifics of any negotiations. Yahoo spokesperson Tracy Schmaler said that Yahoo is still hoping to resolve matters.
“We have been figuring out with the Department of Justice regarding our agreement with Google, and those discussions are ongoing,” Schmaler said. “As we have said, we believe strongly that this agreement will strengthen Yahoo’s competitive position in online advertising and will help to drive a more robust, higher-quality Yahoo marketplace for our advertisers, publishers and users.”
Google and Yahoo delayed enforcing the partnership announced in June to allow the U.S. Justice Department to examine it for antitrust issues. Between them, Google and Yahoo had more than 80 percent of the web search market in August, according to comScore Inc.
The deal has since been mired in the regulatory process. In September, the Justice Department hired Sandy Litvack, its former antitrust chief and Walt Disney Co.’s former vice chairman, to consult on its probe of the search deal.
The deal, which would enable Google to sell advertising for some of Yahoo’s online advertising space, has drawn fierce criticism from advertisers, who fear higher prices.
The internet companies were not ready to concede defeat with Department of Justice officials to finalize the deal over the weekend, but Google management seems to have lost its patience.
Although the partnership does not need the Justice Department’s approval to go on, the agency has the means to block it and may very well do it.
The companies have argued that the arm’s-length nature of the non-exclusive deal, with Yahoo deciding whether to use Google adverts, would ensure they still had strong incentives to remain competitors.
Justice department lawyers have not yet signaled whether they intend to sue to block the partnership, or whether they would clear it if it included more limits to protect competition.
However, one person close to the situation conceded the chances for the alliance had faded.
Part of the shift of Google’s walking away could be Yahoo’s discussion with Time Warner Inc. about buying the content and advertising operations of its AOL unit. Google initially struck the deal with Yahoo as a way to fend off Microsoft Corp.’s unsolicited bid.
Yahoo and AOL are conducting due diligence to see what a combined company would look like, another source previously told Reuters.
However, any agreements made to antitrust regulators would require the companies to sign a consent decree with the justice department, which would then have to monitor future compliance, subjecting Google to a degree of direct regulatory oversight for the first time.
The common understanding is that Yahoo has a lot to lose from the collapse of the partnership than Google. The proposed alliance is slated to add about $800 million per year to Yahoo’s revenues — cash the company definitely needs. Moreover, collapse of the advertising deal would further undermine shaky confidence in the company’s leadership.
If the deal does break apart, however, it is improbable that Yahoo would be lonely for long. Although spurned once before, Microsoft remains interested in buying the company, as does media giant Time Warner.