Our friend Andrew Noyes over at Tech Daily Dose is asking the most important DC question about today’s Microsoft/Yahoo search agreement: “Will the MicroHoo Raise Eyebrows on the Hill?” Not to mention the DOJ/FTC/European regulators/State AGs…
As Andrew notes:
“More than eight months after abandoning its planned advertising partnership with Google amid intense scrutiny from Capitol Hill and the Justice Department, Yahoo is joining forces with Microsoft.”
Given that Yahoo’s deal with Google compelled the Justice Department to start drafting a lawsuit to block the arrangement, many are wondering if the Microsoft/Yahoo deal will get a warmer reception from DC (and state capitals and international regulators).
Definitely, and here’s why:
The Deal Between Google and Yahoo Raised More Regulatory Red Flags
ACT did not object to the Google/Yahoo deal because we believe regulators should be wary of manipulating competition in the fast moving sectors of the technology industry.
However, it was clear from the beginning that Google and Yahoo would have to convince regulators why they shouldn’t step in. As we explained when the deal was first 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.”
In the relevant market of search advertising, Google would have been adding Yahoo’s 20 percent market share to its already dominant 60+ percent market share. To get the DOJ to support a move that would give them 80+ percent of this market, Google needed to make a strong argument about how this would benefit customers and users.
The bar is simply not that high for this agreement, which will only give the combined Microsoft/Yahoo search partnership a meager 25 percent share of the market, still less than half of Google’s total. Additionally, concerns about email and IM that applied to Microsoft’s previously proposed merger with Yahoo do not apply to this search-only deal.
Microsoft and Yahoo’s Advertising Customers Will Likely Support the Deal
Google’s attempts to demonstrate the value of its agreement with Yahoo were undercut by opposition from advertising customers and content partners. The International Advertising Association, World Federation of Advertisers, the World Association of Advertisers, and the World Association of Newspapers all asked the DOJ to block that deal. Yet, many advertisers are already on the record supporting the concept of a Microsoft/Yahoo deal. Search Engine Watch outlines why this deal is "Win for Advertisers:"
Many search marketers agree that Microsoft's technology combined
with Yahoo's traffic will make this a good deal for advertisers.
"While Yahoo has always had decent traffic volume, their PPC tools
have been sub-par. A clunky interface combined with the lack of an
offline editor have resulted in a huge barrier to entry for those
wanting to do PPC with Yahoo," said Melissa Mackey, online marketing
manager at Fluency Media.
"On the other hand, Microsoft's PPC tools are extremely robust – more
so than even Google's in many ways. However, the lack of traffic volume
has historically meant that relatively few advertisers choose to bother
with adCenter."
Department of Justice Already Wary of Google's Dominance
– Christine Varney, now lead antitrust enforcer at the U.S. Department of Justice
As a recent Wired story reminded us, Google's dominance of the search advertising market is clearly on Varney's mind:
The company is currently under investigation by the DOJ for its ambitious book-scanning project, which aims to make every book ever published searchable on Google. And the Federal Trade Commission is looking into whether the Apple board seats held by Google CEO Eric Schmidt and board member Arthur Levinson violate federal antitrust law.
The Department of Justice is clearly interested in ensuring the continued competitiveness of the search advertising market. The fact that a combined Microsoft/Yahoo search will be a more powerful competitor to Google will weigh heavily in its favor.
It Will Get Scrutinized, But Will Likely Pass the Test
Anything Microsoft does results in significant scrutiny by antitrust regulators these days, and this will be no exception. However, there seems to be little reason that American or international regulators will make a bid to stop the deal. As mentioned above, scale is important to competitiveness in the search advertising market, and this gives MicroHoo the scale it needs to compete more effectively with Google.
From the perspective of ACT's primary constituency, IT entrepreneurs, there is a lot to like about this partnership. Search-based online advertising is becoming a critical component of any small firm’s marketing strategy, and this deal should make the market more competitive, innovative, and cost effective.