Antitrust probe could derail Microsoft, Yahoo deal

Yahoo and Microsoft hope that by joining forces, they can tilt the balance of power in internet search away from Google.



First, however, Yahoo and Microsoft have to convince regulators that their plan won't hurt online advertisers and consumers.

As the US Justice Department reviews the proposed partnership, approval figures to hinge on this question: Will the online ad market be healthier if Google's dominance is challenged by a single, more muscular rival instead of two scrawnier foes?

The first step toward getting an answer came this month when Microsoft and Yahoo filed paperwork with federal regulators to comply with the Hart-Scott-Rodino Act, an antitrust law governing mergers and alliances between competitors. The Justice Department has until early September to approve the agreement or - as is likely in this case - request additional information.

European regulators are also expected to review the deal. Microsoft and Yahoo are bracing for the probes to extend into early next year, and the outcome is far from certain.

Just nine months ago, Google abandoned its own proposed partnership with Yahoo to avoid a showdown with the government, which had concluded that Google was already too powerful in the lucrative market for selling ads alongside search results.

Google had hoped to extend its reach even further by selling ads next to some of Yahoo's search results, and in the process, keep Yahoo out of Microsoft's clutches. Microsoft aggressively lobbied against the partnership.

With the Google-Yahoo inquiry behind them, US antitrust regulators are likely to enter this examination with a clearer definition of the internet search landscape and a better understanding of how it affects the steadily growing online advertising market.

Justice Department spokeswoman Gina Talamona would not comment on the antitrust review, whose existence was confirmed by Microsoft and Yahoo.

Microsoft is counting on the Yahoo partnership to close the wide gap separating the software maker from Google in search. Under the 10-year agreement announced last month, Microsoft's Bing search engine would process all search requests and steer search-related ads on Yahoo.

Analysts believe the move will free Yahoo to phase out of the search business so it can focus on other products. Yahoo would keep 88 per cent of advertising revenue generated by searches on its site for the first five years of the deal, and as much as 93 per cent in the final five years.

The Microsoft-Yahoo alliance may stand a better chance of winning antitrust approval than the Google-Yahoo pact because it would combine the second and third players in the search market instead of the top two, said Melissa Maxman, head of the antitrust practice group at Baker & Hostetler LLP. In fact, a combination of Microsoft and Yahoo would still lag far behind Google.

Google handled 64.7 per cent of all US web searches in July, while Yahoo processed 19.3 per cent and Microsoft 8.9 per cent, according to comScore.

The lopsided competition means neither Yahoo nor Microsoft has a large enough audience on its own to lure a significant amount of search advertising dollars away from Google, argues Microsoft General Counsel Brad Smith.

"Advertisers want scale," Smith said in an interview, "so we need to increase our scale to offer something compelling to advertisers."

Already, one large group of advertisers that opposed the Google deal is supporting the Microsoft marriage.

Last year, the Association of National Advertisers feared Google would gain too much pricing leverage over advertisers through a Yahoo alliance. But Microsoft still won't be in the driver's seat if it teams with Yahoo, said Bob Liodice, president of the trade group. Its members include such big marketers as Procter & Gamble, Johnson & Johnson and General Motors.

"This is a whole different ball game," Liodice said. "We are not concerned about monopolisation of the market as a result of two weaker competitors coming together. We would still have a very competitive marketplace."

Maxman said regulators will have to consider another factor as well: Yahoo may need Microsoft to survive. Although it remains profitable, Yahoo might not be able to afford to keep spending so much money on search - where it has been losing ground to Google for years - while its hold on its audience is threatened by rapidly growing internet hubs such as Facebook and Twitter.

Nevertheless, Maxman said, antitrust regulators could still conclude that Microsoft and Yahoo don't absolutely need each other to compete effectively with Google. Microsoft has deep pockets and plenty of brainpower.

And while Yahoo's profits have been slipping for the past three years, the company is now run by a chief executive, Carol Bartz, who has been trying to instill more discipline and focus during the first seven months of her tenure.

"There is no reason that with the right management and right strategy that it can't remain a viable third alternative in the search market," said Matthew Cantor, a New York attorney specializing in antitrust law.

Antitrust regulators generally frown on deals that create duopolies, unless one of the players can show it needs to bow out of a cutthroat competition to stay alive, Cantor said.

"The Justice Department's goal is to prevent the market from becoming too concentrated," Maxman said.

The real challenge for antitrust regulators, she said, is that it can be difficult to predict how a rapidly changing technology market will evolve.

A decade ago, Microsoft's stranglehold on PC software triggered an antitrust case that led regulators to conclude the company had abused its control over PC operating systems.

Now, Google has emerged as the industry's fearsome giant - a transformation underscored by the Justice Department's decision to block Google's proposed deal with Yahoo last year. Antitrust regulators are also reviewing the potential effects of a legal settlement that would give Google the digital rights over millions of copyright-protected books.

With the antitrust microscope zoomed in, Google may not be nearly as active in trying to scuttle the Microsoft-Yahoo partnership as Microsoft was in trying to derail the Google-Yahoo pact last year. Google has said little publicly since the deal was announced other than to reiterate that more competition is good for web surfers and advertisers.

Even if Google doesn't object, the Microsoft-Yahoo agreement merits an examination of how the two companies intend to share the data they gather about web surfers, said Jeff Chester, executive director of the Centre for Digital Democracy, a privacy watchdog group.

"This will be a litmus test for the Obama administration on whether they incorporate privacy into antitrust review," Chester said.

Besides eliminating one of Google's search rivals, the deal would cede Yahoo's market share to a company that still dominates the markets for operating systems and internet browsers.

The antitrust review needs to consider whether Microsoft's clout in those areas would be strengthened by the Yahoo partnership, Chester said.

Yahoo and Microsoft also are among the largest providers of free email and instant messaging services. As a result, even if regulators approve the search alliance, they may impose controls to ensure the two companies keep those other parts of their business separate.

Perhaps the best way to placate regulators may be for Yahoo to sell its search technology to another company besides Microsoft or Google, to spice up the competition, Cantor said.

"If the traditional antitrust doctrines are followed, it is going to be hard for the authorities not to challenge this deal, unless some conditions are placed on the parties," Cantor said.

News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tvPoldark episode 8, review
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
News
news
Life and Style
ebookNow available in paperback
ebooks
ebookPart of The Independent’s new eBook series The Great Composers
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Gadgets & Tech

    Ashdown Group: Head of IT - Hertfordshire - £90,000

    £70000 - £90000 per annum + bonus + car allowance + benefits: Ashdown Group: H...

    Ashdown Group: Application Support Analyst - SQL Server, T-SQL

    £28000 - £32000 per annum + Excellent benefits: Ashdown Group: Application Sup...

    Ashdown Group: Systems Analyst / Data Analyst (SQL Server, T-SQL, data)

    £28000 - £32000 per annum + Excellent benefits: Ashdown Group: Systems Analyst...

    Ashdown Group: European Recruitment Manager - Cheshire - up to £48,000

    £40000 - £48000 per annum + bonus and benefits: Ashdown Group: European Recrui...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence