Update1: Yahoo, Google Forced To Put Deal On Hold For DOJ Investigation

By Dee Chisamera
10:34, October 4th 2008

The advertising deal between Yahoo and Google had to be put on hold until the Justice Department completes the investigation regarding an allegedly antitrust aspect of the deal. The delay should take no longer than a month, although an exact date has not been confirmed. Both companies involved have agreed to continue discussions with the Department of Justice.

"The companies have agreed to a brief delay in implementing this agreement to continue our ongoing discussions with the Department of Justice," Google said in a statement.

"We have had discussions with regulators and look forward to responding to their questions about this agreement," Yahoo added.

The advertising partnership between the two search giants became very controversial, when consumers advocates, advertisers and regulators issued concerns that it might contribute to an anticompetitive environment.

The deal was announced back in June soon after the talks between Microsoft and Yahoo failed to reach a conclusion. Yahoo expects to get between $250 and $450 million in incremental operation cash flow out of the agreement.

Both Google and Yahoo dismissed claims that their partnership would disrupt competition, increase prices for advertisers, and give them complete control over the search advertising market. The companies argued that this is not a merge, on the contrary, it will help Yahoo consolidate its business and its position as a stronger competitor.

Several critics of the deal has even expressed their believe that Yahoo will have less incentive to compete against Google, as it will rely upon its main competitor for a significant increase in its revenue. In response to the critics, Google has also created a website to address the concerns regarding this deal and explained that “Yahoo! has stated that it will reinvest the additional revenue from this agreement into improving its user services and competing vigorously against Google, Microsoft and other companies.”

Last week, the American Antitrust Institute adopted a more optimistic position regarding the deal, by releasing a white paper on both the dangers and the benefits that would arise from this partnership. According to them, regulators should take into consideration the fact that Yahoo might actually become a viable competitor, and rejecting the deal could also mean rejecting the precompetitive potential of the arrangement.

Furthermore, they also suggested that with the right set of legally enforceable requirements, the partnership could take place without anticompetitive or monopoly fears.

The AAI was not the only one seeing a positive side to the Yahoo – Google deal. Earlier this week, 11 California lawmakers expressed concern over legal action that the Department of Justice might adopt against the deal.

The lawmakers argued that the partnership is not a merge, therefore it should not be considered as one, especially since there are or have been other similar agreements in the industry. The discussions with the Department of Justice continue.

Last month, the European Union announced also that it will be reviewing the advertising partnership between Yahoo Inc. and Google Inc. for antitrust implications.