"The companies have agreed to a brief delay in implementing this agreement to continue our ongoing discussions with the Department of Justice," Yahoo said in a statement. "We have had discussions with regulators and look forward to responding to their questions about this agreement."
Change of plans
The two companies had initially said they would start to "phase in" their paid-search deal in October, regardless of whether federal regulators had wrapped up their review of the deal.
But now they've backtracked in hopes of avoiding a costly, time-consuming legal battle, and perhaps gaining the Justice Department's blessing in the process.
Yahoo and Google don't need the department's approval to implement their search-advertising pact, announced June 12, but they anticipated that a deal between the dominant player in search advertising and the distant No. 2 would attract antitrust scrutiny.
The Justice Department retained former department antitrust chief Sanford Litvack last month to review the deal, a move that many see as a prelude to a lawsuit. California, Connecticut and Florida have opened their own probes, as have Canadian authorities.
The deal also faces strong opposition among advertisers that fear consolidation in the online search-advertising market and higher prices.
"It's not good for my clients and it's not good for consumers," said Bill Leake, CEO of Apogee Search.
Robert Liodice, CEO of the Association of National Advertisers, said he's "delighted" at the decision and is encouraged that "the ultimate implementation of the deal is now tied to whatever the DOJ rules."
The decision to delay is a major change in course, especially for Google, whose CEO, Eric Schmidt, said just weeks ago that they would implement the deal with or without approval. Google and Yahoo said the delay would be "brief," but there is no time constraint on the Justice Department, which can take as much time to examine the deal as it sees fit.
The announcement comes after a week of informal talks between Google and Justice staffers. Before today's announcement, former Justice official and Stifel Nicolaus analyst Rebecca Arbogast laid out the feds' options.
"They could go in and file in court, 'This is anticompetitive' and try to stop it," she said. "Or, they could -- as in merger reviews -- discuss with Google and Yahoo ways to amend the deal to allay their concerns."
One possible solution could be for Google and Yahoo to put a cap on the amount of business they do together.
Google had 63% of the search-ad market in August, while Yahoo had 19.6% and Microsoft 8.3%, according to ComScore.