States Probe Advertising Deal Between Google and Yahoo

By Peter Whoriskey
Washington Post Staff Writer
Saturday, July 12, 2008

Several states have opened antitrust investigations into a cooperative advertising pact struck last month by Google and Yahoo, according to sources familiar with the inquiries.

About a dozen states are closely reviewing the agreement, which joins two of the world's most dominant Internet companies. Connecticut, Florida and at least two other states, have issued subpoenas or other compulsory requests for documents, the sources said. They spoke on condition of anonymity because they aren't authorized to comment publicly on the matter.

"We're looking at it because we're concerned about an excessive concentration of market power," said Connecticut Attorney General Richard Blumenthal.

Noting that Google has about 70 percent of the search engine market and Yahoo close to 20 percent, Blumenthal said: "On their face, those numbers cry out for an inquiry. If their agreement is a substantial one in its impact on services or costs, it could have a huge impact on competition. It could be hugely anti-competitive."

He said his office had issued subpoenas to both Google and Yahoo.

The investigation by the states is in its early stages, but it comes as the deal is also drawing close scrutiny from the Justice Department and Congress. Next week, separate Senate and House committee hearings are scheduled on Internet competition.

"Just as we are continuing to have cooperative discussions with the Department of Justice about this arrangement, we voluntarily reached out to state attorneys general to explain the deal when we first announced it," Google said in a statement.

"We continue to have discussions with them about the agreement. We are confident that the arrangement is beneficial to competition, but we are not going to discuss the details of the regulatory process."

A Yahoo representative declined to comment.

Google is already the world's No. 1 Internet company and, according to its critics, it could gain a monopoly in Internet advertising if the deal with Yahoo is permitted.

One of the largest chunks of Internet advertising today is search advertising, or the ads that run alongside Internet search results delivered by the major search engines: Google, Yahoo and Microsoft.

Under the deal, announced June 12, Google would provide search advertising to run along some of Yahoo's searches, with Yahoo estimated to receive as much as $800 million annually from the agreement.

By proposing to unite the two biggest players in search advertising, however, the agreement aroused fears that Google is gaining too much control over the market.

"We are reviewing the proposed transaction in conjunction with other state attorneys general, as well as the Department of Justice," said Sandi Copes, a spokeswoman for Florida Attorney General Bill McCollum. "All we can say at this time is that the review is ongoing."

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