Google and Yahoo! Talk Volume Caps with Justice Department

    October 14, 2008
    Chris Crum

Google and Yahoo! are in the middle of trying to convince the federal government (namely the Justice Department) that their search advertising deal is not an antitrust issue. This has been going on for months as they’ve tried to convince the entire world of the same.

Google, especially, has gone to great lengths to emphasize that the deal would not be a threat to competition. Until recently, they even said they’d be going forward with deal regardless of whether or not the Department of Justice had finished their investigation. They launched a website completely dedicated to discussing the details of the deal, comparing it to supplier arrangements in other industries like Toyota providing hybrid engine technology to Ford or Canon providing laser printer engines to HP. That was not enough to keep the opposition at bay though, and they are still trying to negotiate with the Federal government over the deal. According to the Wall Street Journal:

In the settlement talks with the government, both companies have discussed concessions. These include capping the volume of Google ads Yahoo would use, assurances that Yahoo would continue to compete in search ads, and a reporting mechanism to ensure compliance, people close to the talks said. U.S. officials hope to impose measures that will ensure that prices advertisers must pay don’t rise significantly after the deal…

Reworking the deal to include a reporting mechanism could require the companies to disclose more about the mechanics of their closely-guarded search-advertising technology than they want to. And caps on how many Google-sold ads Yahoo can display could limit Yahoo’s financial gains from the agreement.

Keep in mind, these are just discussions at this point, but they’ve still got people talking, and there are mixed feelings about these new possibilities for the deal. "Let’s put the price constraints aside, which are always a bad idea because they disrupt supply/demand equilibrium and generally screw up markets," writes Michael Arrington at Tech Crunch. "But the volume caps may not be such a bad idea, if the deal were to go through."

I don’t know how thrilled Yahoo! would be with the caps, considering they’re planning to take all the money they make from this and invest it in their own search business, which is well behind Google in terms of market share.  But, that’s negotiation. It’s all about compromise. We’ll see what happens.