San Francisco — A group of eleven members of the Democratic congressional leaders from California have sent a letter to the U.S. Department of Justice expressing strong support of a controversial search marketing deal stating that “growth and innovation could be stifled” if it blocks the proposed cooperative advertising agreement between Yahoo to run ads supplied by Mountain View-based Google alongside its own search results and share in the profits.
In a letter addressed to U.S. Attorney General Michael Mukasey, the legislators, from the state where both the Internet titans are based, urged the DOJ not to block the ad deal, mention that the agreement is not exclusive and warned that blocking it with a lawsuit as the DOJ is considering could stifle online ad market growth and innovation.
The group sent a letter to the DOJ Friday.
“We are deeply concerned that the Department of Justice may be considering a preemptive lawsuit to block Yahoo’s nonexclusive online advertising agreement with Google,” states the letter, signed by a handful of lawmakers representing Silicon Valley. “If such action were taken, we believe such an unprecedented [lawsuit] would detrimentally affect the online advertising market and electronic commerce.”
“Similar agreements are commonplace in many industries and standard among Internet companies,” the letter says. “In fact, Microsoft had a similar agreement with Yahoo and Google has similar arrangements with tens of thousands of companies.”
Altogether, 11 members of the U.S. House of Representatives expressed support of the pending deal by denouncing a proposed block, the Wall Street Journal reported.
Anna Eshoo, Zoe Lofgren and Mike Honda, lawmakers all representing the Silicon Valley area, claimed that Congressional impediments to the deal would ultimately hurt technological innovation and competition in the marketplace.
The deal allows Google to utilize its online advertising expertise alongside the Yahoo search engine. Because it is not a merger, the alliance does not combine the companies’ shares of the online ad market, the politicians argue.
Norman Hawker of the American Antitrust Institute criticized the lawmakers’ actions for Google-Yahoo.
“They are focused like a laser beam on the express in terms of the agreement, and they ignore the agreement’s probable consequences,” Hawker of the AAI said in a statement Tuesday. “Contrary to the letter, similar agreements are not commonplace because industries with this level of concentration are not commonplace.”
Hawker continued to say that it is “disappointing” that members of Congress did not identify or call for any safeguards that would ensure Yahoo’s continued presence in the market.
Microsoft senior vice president and general counsel Brad Smith stands behind a scathing assessment of the tie-up, saying it would crimp competition and give Google “unprecedented” control of the gateway to the Internet.
The deal between the two companies has been criticized because Google dominates the market for search engine advertising and Yahoo is its nearest competitor. Opponents fear the union of the two could help create a Google monopoly.
The letter comes amid speculation that the DOJ will move to block the agreement between the two largest vendors of search-related advertising online. Last week, a bipartisan group of 10 members of the House Judiciary Antitrust Task Force asked the DOJ to “closely review” the ad deal.
“New entrants would have significant financial hurdles to cross in order to be competitive,” the Judiciary letter said. “Bluntly, competition in the online advertising market would be significantly constrained under a prospective Google-Yahoo agreement.”
Google and Yahoo defend the alliance as positive for consumers and businesses, but Smith maintains the tie-up would give Google “an unprecedented level of control over advertising for search on the Internet — up to 90 percent potentially of all search ads.”
“That is just explicitly wrong,” Yahoo president Sue Decker wrote Friday in an online posting titled “Myth busting and the Yahoo-Google agreement.”
“It is simply a contract that gives Yahoo the right, but no obligation, to show Google AdSense ads on Yahoo’s own network.”
The Justice Department is currently reviewing the deal and is expected to announce a decision whether to go to court to block the deal by early October.
Overall, the proposed agreement would enable Sunnyvale-based Yahoo to run ads supplied by Google alongside Yahoo’s search results and on some of its Web properties in the U.S. and Canada.
Yahoo further said that the deal would enhance its ability to compete in the converging search and display marketplace and anticipated that the agreement will generate approximately $800 million in annual revenue, with an estimated $250 to $450 million in incremental operating cash flow in the first 12 months.
The campaigning legislators agree with Decker, saying in their letter that such non-exclusive agreements are "standard" among Internet companies.
Meanwhile, The World Association of Newspapers (WAN) came out two weeks ago against the Yahoo-Google ad alliance, saying it “strenuously opposes” a deal it thinks will harm competition in the online ad market.
Along with US anti-trust watchdogs, the European Union’s top competition regulator has opened an investigation into the proposed online advertising tie-up.
“This is an agreement between two of the major players on the Internet; clearly we are being prudent” in opening the probe, said Jonathan Todd, spokesman for EU Competition Commissioner Neelie Kroes.
“We are not aware whether there is a problem; we are looking at it in case there is,” he said of the preliminary investigation that was launched in July.
A Google representative said the company had no comment on letter. A Yahoo spokeswoman provided this comment: “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 plan to move forward with the agreement in October. They voluntarily submitted the deal to the DOJ after they announced it in June, and the two companies do not need DOJ approval before implementing the conditions of the deal. The DOJ could file a lawsuit to block the deal before or after it goes live, however.
A Google spokesman said Monday that the company continues to work with the DOJ on the deal. “We are continuing to have cooperative discussions with the Department of Justice about this arrangement and voluntarily delayed implementation in order to give them time to understand the agreement. We are confident that the arrangement is beneficial to competition,” said Adam Kovacevich, a Google spokesman.
Among the lawmakers signing the letter was: Anna Eshoo(D), Zoe Lofgren(D), Ellen Tauscher(D), Sam Farr (D), Mike Thompson(D), Mike Honda(D) , Doris Matsui(D), Jackie Speier(D), George Miller(D), Lynn Woolsey(D), Barbara Lee (D).
The legislators, however, said it is unlikely that a monopoly could arise because of the deal.
“The competitive and disruptive nature of the Internet makes it extraordinarily difficult for any company to dominate,” they wrote.