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Google: Yahoo! tie-up not anti-competitive
But Redmond tells a different story

By Reuters

Published: Tuesday 29 April 2008

Google believes regulators would not bar a potential business deal with Yahoo! because it would be "non-exclusive" and falls short of an outright merger, a person familiar with Google's thinking has said.

Yahoo! is exploring alternatives to Microsoft's $42.7bn takeover offer, which the web pioneer has rejected as being too low.

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The US Department of Justice is questioning the companies about potential competitive issues raised by a partnership with Google, sources said this week, as Yahoo! completed a two-week test of Google's system for selling ads alongside Yahoo!'s own web-search results.

Google believes such a partnership would not be anti-competitive because it would be an arrangement in which Yahoo! would use Google's more profitable search advertising platform to make more money for itself, said the source, speaking on condition of anonymity.

A deal would be no different from partnerships Google has with other web companies including Time Warner's AOL and IAC/InterActiveCorp, the source said.

By contrast, Google thinks a takeover by Microsoft of Yahoo! would raise far more antitrust concerns because the combined company could corner large chunks of multiple markets, from webmail to instant messaging, the person said.

Google and Yahoo! have said they co-operated with the Department of Justice and told the agency about the test.

When Yahoo! said two weeks ago it had begun testing Google's AdSense system, it drew outcry from critics who see Google's domination of the market as a barrier to a deal.

Google is the top search engine, and a tie-up with number-two search engine Yahoo! would give the two companies more than 80 per cent of the market, according to ratings company Hitwise.

Neither company has disclosed the results of the test, under which three per cent of US Yahoo! searches carried advertisements using AdSense. Yahoo! president Susan Decker said last week it was "premature" to speculate on options that the company might pursue with Google.

Google remains open to further discussions with Yahoo! on hammering out a deal because no final decisions have been made, the source said.

For its part, Microsoft has said a Yahoo!-Google partnership would make the market for web search far less competitive.

Aaron Edlin, who teaches antitrust law at the University of California at Berkeley, said: "The general rule would be that if the arrangement substantially limits competition in some aspect of their business that would be problematic. Collaboration that comes short of merger is much more apt to pass muster before antitrust authorities."