Google Kills Yahoo Ad Deal 79
mytrip writes "Google has pulled the plug on on a search-ad partnership with Yahoo that would have given Yahoo major new revenue but that raised antitrust concerns. 'After four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement,' said David Drummond, Google's chief legal officer in a blog post Wednesday."
DOJ & antitrust (Score:5, Informative)
There's an index called Herfindahl-Hirschmann, where the percentage of the market share for all companies in the market (here, they probably ran it for advertising and search) is squared. If the sum of the squares is above 1700, the DOJ *automatically* threatens/files an antitrust suit.
Hopefully that's semi-clear. It's part of basic microeconomics if you need a better explanation.
What This Means (Score:5, Informative)
There are two very interesting things about Google pulling out:
1) Google is now big enough to attract serious government anti-trust attention. It just immensely harder for them to do anything big that would benefit their core business (advertising) or anything external where they could throw their weight around. The message from the government seems to be that they're going to start treating Google as a de-facto monopoly in search/advertising, which means they're going to try to keep Google from using that monopoly in other markets.* I don't think they're the kind of market threat that the government makes them out to be, but left unchecked they may get there one day soon.
2) Yahoo is fucked. Yang should have sold it to Microsoft when he had the chance; they're probably not going to be able to stand on their own now, and whoever ends up being their suitor won't pay nearly as much as MS's best offer.
* Not that the DoJ is particularly effective here. See: Microsoft
More economics terms (Score:5, Informative)
Technically speaking, Google's an oligopolist rather than a monopolist. Oligopoly is a market in which a few large firms control a market with a high concentration ratio (the Herfindahl-Hirschmann Index I mentioned above) and high barriers to entry (in this case, the R&D and advertising that would be required to compete).
Consider the barriers in terms of the fact that Microsoft, with all its money and brand recognition, can't compete with Google in search or advertising. That's partly an issue of quality (real or perceived), as we geeks know, but it does make clear that it's not a "hit and run" (contestable) market where many small firms can jump in and compete.
Re:What This Means (Score:2, Informative)
So, by preventing this deal, the DOJ has all but guaranteed Yahoo's demise, thus leaving only two significant players to split the remaining pie, who will probably split the void Yahoo leaves up about equally, so Google will get even more market share than it does now. Alternatively, in the best case, MS still buys Yahoo, resulting in a closer-to-equal market share split, but still with only two legitimate players.
Way to go DOJ, thanks for looking out for us.
And now Yang wants Microsoft to buy Yahoo... (Score:2, Informative)
see http://www.washingtonpost.com/wp-dyn/content/article/2008/11/06/AR2008110600027.html [washingtonpost.com]
Re:More economics terms (Score:3, Informative)