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
Young Winstone: His ‘tough-guy’ image is a misconception
people
Sport
Adnan Januzaj and Gareth Bale
footballManchester United set to loan out Januzaj to make room for Bale - if a move for the Welshman firms up
Arts and Entertainment
Ellie Levenson’s The Election book demystifies politics for children
bookNew children's book primes the next generation for politics
News
Outspoken: Alexander Fury, John Rentoul, Ellen E Jones and Katy Guest
newsFrom the Scottish referendum to the Ice Bucket Challenge, our writers voice their opinions
PROMOTED VIDEO
Life and Style
ebookNow available in paperback
ebooks
ebookPart of The Independent’s new eBook series The Great Composers
News
i100
Sport
Yaya Sanogo, Mats Hummels, Troy Deeney and Adnan Januzaj
footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
Arts and Entertainment
Pharrell Williams' “Happy” was the most searched-for song lyric of 2014
musicThe power of song never greater, according to our internet searches
Sport
Tim Sherwood raises his hand after the 1-0 victory over Stoke
footballFormer Tottenham boss leads list of candidates to replace Neil Warnock
Voices
Strictly Come Dancing was watched by 6.9m viewers
voicesIt has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Arts and Entertainment
Roffey says: 'All of us carry shame and taboo around about our sexuality. But I was determined not to let shame stop me writing my memoir.'
books
News
Danielle George is both science professor and presenter
people
News
i100
News
Caplan says of Jacobs: 'She is a very collaborative director, and gives actors a lot of freedom. She makes things happen.'
people
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: Moodle Developer (PHP ,Linux, Apache, MySQL, Moodle)

    £35000 - £45000 per annum: Ashdown Group: Moodle Developer (PHP ,Linux, Apache...

    Recruitment Genius: Web Developer

    £17000 - £30000 per annum: Recruitment Genius: This is a fantastic opportunity...

    Recruitment Genius: Junior .NET Web Developer - Winform / MVC

    £21000 - £26000 per annum: Recruitment Genius: This Award-winning pharma softw...

    Recruitment Genius: Senior Java Developer

    £30000 - £45000 per annum: Recruitment Genius: A Senior Java Developer is requ...

    Day In a Page

    War with Isis: The West needs more than a White Knight

    The West needs more than a White Knight

    Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
    Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

    'The day I was shot by the Taliban'

    Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
    Revealed: the best and worst airlines for delays

    Revealed: the best and worst airlines for delays

    Many flyers are failing to claim compensation to which they are entitled, a new survey has found
    The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

    The stories that defined 2014

    From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
    Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

    Disaster looming? Now you know where to head...

    Which British city has become the first to be awarded special 'resilience' status by the UN?
    Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

    Finally, a diet that works

    Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
    Say it with... lyrics: The power of song was never greater, according to our internet searches

    Say it with... lyrics

    The power of song was never greater, according to our internet searches
    Professor Danielle George: On a mission to bring back the art of 'thinkering'

    The joys of 'thinkering'

    Professor Danielle George on why we have to nurture tomorrow's scientists today
    Monique Roffey: The author on father figures, the nation's narcissism and New Year reflections

    Monique Roffey interview

    The author on father figures, the nation's narcissism and New Year reflections
    Introducing my anti-heroes of 2014

    Introducing my anti-heroes of 2014

    Their outrageousness and originality makes the world a bit more interesting, says Ellen E Jones
    DJ Taylor: Good taste? It's all a matter of timing...

    Good taste? It's all a matter of timing...

    It has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
    Olivia Jacobs & Ben Caplan: 'Ben thought the play was called 'Christian Love'. It was 'Christie in Love' - about a necrophiliac serial killer'

    How we met

    Olivia Jacobs and Ben Caplan
    Bill Granger recipes: Our chef's breakfasts will revitalise you in time for the New Year

    Bill Granger's healthy breakfasts

    Our chef's healthy recipes are perfect if you've overindulged during the festive season
    Transfer guide: From Arsenal to West Ham - what does your club need in the January transfer window?

    Who does your club need in the transfer window?

    Most Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
    The Last Word: From aliens at FA to yak’s milk in the Tour, here’s to 2015

    Michael Calvin's Last Word

    From aliens at FA to yak’s milk in the Tour, here’s to 2015