Yahoo-Google Deal Runs Into Resistance

Fear of Higher Prices, Less Competition, Loss of Privacy Among Concerns Raised by Advertisers and Lawmakers

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WASHINGTON ( -- Yahoo's agreement with Google for online search ads may be generating some pricing and antitrust worries from advertisers, but in Congress the deal is increasingly raising broader concerns about ad targeting, privacy and competition.
Rep. Joe Barton, R-Texas
Rep. Joe Barton, R-Texas Credit: AP

Even as the Department of Justice reviews the antitrust impact of the deal, congressional insiders said the partnership, as well as one between Charter Communications and ad-targeting firm NebuAd, could reinvigorate a 10-year-old fight over privacy issues and lead to closer congressional oversight of online marketing activity.

Advertisers' interests at odds
That means advertisers that are bringing up the competition issues of a Google-Yahoo deal may have to walk a fine line between communicating those concerns and drumming up too much attention from Congress, which sees the issue as relating to privacy as well. While advertising and privacy protection are not mutually exclusive, marketers have generally favored self-regulation over congressional regulation.

"[The] announcement of an online advertising partnership between Google and Yahoo is yet another example of the rapid changes in this market and further underscores the need for close scrutiny of the impact on consumers," U.S. Rep. Bobby Rush, D-Ill., said in announcing plans for a hearing this summer of the Commerce, Trade and Consumer Protection panel. He indicated the hearing would address "consolidation, competition and consumer privacy."

Stoking privacy concerns is an upcoming test by cable and internet service provider Charter of NebuAd's system to track all consumer searches to deliver targeted ads. Consumer groups contend that by indexing every search at the ISP level, the system dramatically increases privacy risks. They also maintain that the ads are delivered by "hijacking" web browsers. NebuAd denied those charges and said consumers can opt out of its program and will not be targeted or receive targeted ads.

Gauntlet in Congress
At least five congressional committees now are looking at various aspects of the deals.

This week a House Small Business Committee panel is to hold a hearing on "the impact of online advertising on small firms," which is supposed to highlight the benefits and challenges on small business' use of advertising techniques. Additionally, the Senate Judiciary Committee's antitrust panel, the House Energy and Commerce Committee's Commerce, Trade and Consumer Protection panel, and the Senate Commerce Committee have announced plans for separate hearings. While the Judiciary Committee's examination is only about Google/Yahoo, the rest are broader.

"There are increasing concerns about data collection for online advertising practices across the popular websites and search engines, the sharing of information and the ability of users to control their personal information," an aide to U.S. Sen. Byron Dorgan, D-N.D., said regarding the Senate Commerce Committee hearing.

Rep. Joe Barton, R-Texas, the ranking Republican on the House Committee on Energy and Commerce, wrote in a letter to Yahoo CEO Jerry Yang that the Google partnership "raises several concerns, not only about the effect of the partnership on the online search advertising market, but also about protections for Yahoo user data."

Among his specific concerns: the dates on which the companies communicated; how they reached the conclusion that their partnership would bring Yahoo $800 million in increased revenue; and the percentage of the $800 million that is attributable to new search traffic vs. increased pricing. He also asked Yahoo to explain the criteria it will use to determine where Google search ads will appear on Yahoo search queries and what data Google will collect through the deal.

Justice Department seeks input
Separately from activity in Congress, the Justice Department is looking into the antitrust aspects of the Yahoo-Google deal and has called on customers to talk to about the potential impact in private, closed-door hearings. In these hearings, the Justice Department will question Google and Yahoo's largest customers about whether the deal will reduce competition or raise prices. They will also question whether there is benefit for consumers or if it's simply a transfer of wealth from advertisers to Google and Yahoo.

Conversations between advertisers and the Justice Department are legally protected as confidential. Because of that, a person familiar with Microsoft's thinking said that what people see publicly, in terms of advertiser sentiment around the deal, isn't necessarily the whole story. He suggested that some marketers may stay publicly quiet to preserve their relationships with Google, on which a large part of any search marketer's business is dependent.

That person also said that because the deal has no offsetting efficiencies, it could be more difficult for it to pass antitrust muster. Antitrust law looks at deals from the perspective of the customer; a key issue will therefore be whether the Justice Department considers advertisers to be the customer. Parties opposed to the deal could also make the argument that the higher prices advertisers would pay for search marketers would be passed along to consumers.

The Association of National Advertisers and the American Association of Advertising Agencies have not yet issued any public statement about the deal. Said ANA CEO Bob Liodice in an e-mail: "We're assessing the situation right now. No conclusions yet."

Agencies not powerless
One agency executive said the Google/Yahoo deal raises some pricing concerns, but that agencies have tools and some alternatives to keep Google in check.

"There are plenty of data points to keep Google very honest, and we have to be working at the right points and we have to keep a careful watch, because they have such a significant share," said Rich Gagnon, chief media officer of DraftFCB.
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