In the second biggest news of the day, Google abandoned its controversial advertising
deal with Yahoo! under heavy pressure from the Department of Justice. ACT and many others predicted this based on recent moves by Google and leaks from those close to the deal. Given the timing of the announcement and the intelligence of Google’s PR team, there is even a good chance this deal has been dead for weeks and they simply thawed it out and pronounced its time of death today.
We never joined the chorus of voices asking the DOJ to stop this deal, because we fundamentally believe that antitrust regulators need to be exceedingly cautious when jumping into the fast moving sectors of the technology industry. However, it's crystal clear Google's decision today was the only option available from the DOJ.
As we wrote when the deal was announced:
A move this aggressive will undoubtedly set off bells, whistles, and sirens in Washington and Brussels. Deals like this between #1 and #2 players in a market are usually frowned upon…Both American and European regulators put Google on notice following its acquisition of DoubleClick. They essentially said, “OK. But we'll be watching you.”
The optics of the deal were bad from the start. When advertisers, publishers, competitors, consumer groups, and members of Congress started to voice their opposition to the deal, the deal got a lot more difficult. Based on the DOJ’s press release, it’s clear no amount of tinkering around the edges was going to satisfy their concerns about competition.
The Department said that, if implemented, the agreement between these two companies accounting for 90 percent or more of each relevant market would likely harm competition in the markets for Internet search advertising and Internet search syndication.
Basically, Google's only path toward implementing this deal was through a long court battle. While Yahoo! needed the short-term revenue infusion the deal was supposed to provide, Google never really NEEDED this deal. They had several strategic reasons for making the deal, but it was never critical to their long-term goals. And the downside of trying to push the deal through the hard way would be enormous (and probably fruitless). As Kara Swisher noted again today, this fact was not lost on some of the more DC-savvy members of the Google team:
After all, many top execs at the company were dead set against it from the start, mostly due to the undue scrutiny it would bring to Google. Those execs now had plenty of ammo to mercilessly strafe the deal from behind.
Early on, that was also a big worry of Google’s own operatives in D.C., who expressed concern–largely ignored at HQ, where execs really do see themselves as not even slightly evil–about its growing image as a scary behemoth.
Google is suffering from the same problem that all immensely successful companies have when regulators come knocking on their door for the first time: hubris. The executives still think of the company as the “Startup that Could” rather than the “Behemoth that Shouldn’t.” With Google’s ascension to the number one player in the market, it needs to realize the rules are officially different now.
Tags: antitrust, association for competitive technology, aybabtu, Google, schmidt, yahoo
