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Congress Steps Up Questions On Google, Yahoo Ad Alliance

By Kim Hart
Washington Post Staff Writer
Wednesday, July 16, 2008

Google's proposed search advertising partnership with Yahoo, already the subject of much scrutiny, faced additional examination on Capitol Hill yesterday during separate House and Senate hearings on Internet competition.

Lawmakers questioned executives from Google, Yahoo and Microsoft -- the biggest players in online marketing -- about how deals between the companies would impact consumers and advertisers. The hearings were prompted by an announcement last month that Google would provide some search advertising for Yahoo.

"Doesn't this give advertisers incentive to bypass Yahoo entirely and go directly to Google?" said Sen. Orrin G. Hatch, (R-Utah), ranking member of the Senate Judiciary subcommittee on antitrust, competition policy and consumer rights. "Why bother bidding on Yahoo's site when I can go to Google and get two for one?"

Sen. Herb Kohl (D-Wis.), chairman of the committee, asked whether the agreement would reduce Yahoo to a "satellite in the Google orbit."

Google is the top Internet company and, its critics say, could control Internet advertising if its deal with Yahoo is permitted.

The Justice Department is investigating whether a partnership between Google and Yahoo could lead to a monopoly. Several states also have opened antitrust reviews of the deal.

Search advertising, referring to the ads that run beside the search results provided by Google, Yahoo and Microsoft, make up one of the largest chunks of Internet advertising. Google is the No. 1 search engine, with Yahoo and Microsoft running a distant second and third.

Under the deal, Google would provide search advertising to run with some Yahoo searches in the United States and Canada. Yahoo is estimated to get as much as $800 million annually from the deal.

Microsoft argues that allowing the two biggest players in search advertising to combine efforts would give Google control of 90 percent of the market and allow it to raise prices and have unprecedented access to information about consumers' online habits.

"If Google makes more money, then Yahoo makes more money," said Brad Smith, Microsoft's general counsel. "That is not the way the market is supposed to work."

Smith also said Yahoo chief executive Jerry Yang had warned Microsoft in a meeting last month that a partnership between Google and Yahoo would push Microsoft out of the search-advertising market.

Michael J. Callahan, Yahoo general counsel, said he did not recall that comment by Yang.

Google and Yahoo defended the partnership as a way to deliver more relevant ads to consumers and more valuable leads to advertisers.

Callahan said the firm plans to use the revenue from the deal to be a more formidable competitor for Google.

"Our incentive is to sell as many Yahoo ads as possible," he said.

Google general counsel David Drummond disagreed that the deal would result in Google's control of the search ad market because Yahoo would still sell its own ads.

"Yahoo is staying in the market and is a competitor going forward," Drummond said. "If Microsoft swallows up Yahoo, one competitor will be gone."

Tim Carter, founder of AsktheBuilder.com, which provides home improvement advice, told lawmakers that a Google/Yahoo partnership would let Yahoo grow its search advertising business and allow small firms like his to reach more people. (Carter writes a column syndicated by Tribune Media Services that runs in The Post.)

"You can buy ads for very little money on all three of these search engines," he said.

Matthew Crowley, chief marketing officer of YellowPages.com, which is owned by AT&T, said the deal would weaken Yahoo and ultimately his business. As he put it: "We'll end up paying higher rates for less inventory on Yahoo."

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