Advertisers Derail Google Deal

Search-Ad Partnership With Yahoo Mobilized Microsoft, WPP, ANA

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NEW YORK ( -- It was clear that Yahoo and Google expected some resistance when they announced their search-advertising arrangement June 12 -- they just underestimated how much pushback they'd get from advertisers. And that proved to be the deal's fatal flaw.
David Drummond, Google's senior VP-corporate development and chief legal officer
David Drummond, Google's senior VP-corporate development and chief legal officer

Google announced last week it was pulling out of the pact, ending a four-and-a-half-monthlong saga. The reasoning was telling: "Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners," wrote David Drummond, Google's senior VP-corporate development and chief legal officer, in a blog post. (Those valued partners, of course, being in the ad industry.)

Google and Yahoo seemed to underestimate the pressure Microsoft and, to some extent, WPP Group would be able to exert on the ad world. Immediately after the pact was announced, Microsoft's team of lobbyists in Washington and its Madison Avenue adviser, Medialink CEO Michael Kassan, swooped in with arguments against it. Mr. Kassan, who wields one of the industry's most-envied Rolodexes, reached out to advertisers and their trade group, the Association of National Advertisers. The key to derailing the deal would be to get marketers -- big American companies -- to come out against it.

Still, the ANA needed to do its own research. On June 19, ANA CEO Bob Liodice told Ad Age he was "assessing the situation right now. No conclusions yet." The organization sent substantial requests for information from all the parties involved and took its time analyzing what it got back. Then, on Sept. 7, in a rather unprecedented show of opposition, the ANA took a stand against the deal. Mr. Liodice said Microsoft was certainly not the reason the group made its move, citing agreement among board members, a powerful group that includes General Motors Corp. and Procter & Gamble.

"Candidly, I don't think the ANA has ever gotten as deeply involved as this one," said Mr. Liodice. "ANA was pretty crucial," said WPP Chief Executive Martin Sorrell. "It gave a clear and unequivocal 'no' on the basis of market concentration."

After the ANA's opinion came opposition from the International Advertising Association and World Federation of Advertisers.

Meanwhile, the Department of Justice was subpoenaing agencies and advertisers and requesting data and studies to help it assess the search market share and pricing issues.

Lack of transparency
The biggest complaints among advertisers and the ANA was a lack of transparency into the deal, which would have allowed Google to sell search ads against some search queries on Yahoo. It was meant to lift Yahoo out of Microsoft's grasp and help the portal stay independent by goosing its cash flow up to $450 million in the first year.

It was hard for advertisers to reconcile the rationale: Why would Google help its closest competitor, Yahoo, increase free cash flow so it could build a better search engine?

The companies said the pact would lead to more relevant advertising for consumers and better return on investment for advertisers. But the ANA wanted proof, which it said wasn't provided despite Yahoo and Google having tested the concept. Other inquiries about details of the deal couldn't be answered because the partners said they were still being worked out. And Mr. Liodice kept asking which clients supported the deal.

"I kept asking ... what advertisers out there think this is a good thing?" he said. "And there weren't any." One that Google has referred to is, which didn't satisfy ANA.

Of course, Publicis Groupe was a big public backer. In Ad Age, VivaKi President Curt Hecht defended the deal in an op-ed as Group M Interaction CEO Rob Norman cautioned against it. But Mr. Liodice said there seemed a bit of conflict of interest with Publicis' point of view, given it has a major holding-companywide partnership with Google. (Worth noting here were conflicts of interest on the opposition side; companies such as Microsoft and AT&T are both big advertisers that have business divisions competitive with Google.)

'Misinformation and speculation'
"We were disappointed by some of the negative reaction to the agreement because we believe much of it was based on misinformation and speculation," said a Yahoo spokesman in an e-mail. When asked if Yahoo did enough to address advertiser concerns, he noted that the company met with advertisers during the process and answered all the ANA's questions. "We believe we were as transparent as possible throughout the process, but questions still remained, despite our best efforts."

Google called for town-hall meetings with advertisers to explain its business and the Yahoo deal, and Yahoo reached out, explaining it would attend the ANA's annual conference in Orlando, Fla. But Mr. Liodice said it was too late and came "well after we'd raised our objection."

At first blush, it might appear as though Google is the big winner in all this -- it thwarted Microsoft's initial attempt to take over Yahoo and it has also weakened its closest competitor, Yahoo. But Google may have opened itself up to future scrutiny by antitrust regulators and major advertising executives. While Yahoo clearly had the most to lose when the deal went away, Google potentially had the most to lose if the deal went through. Simply put, it wasn't worth risking the trust of the advertisers it is counting on to fund its ambitious display, YouTube and TV ad plans.
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