Google Scuttles Ad Deal with Yahoo

Justice Department Says a Partnership Would Probably Stifle Competition

Google pulled out of a proposed advertising partnership with Yahoo yesterday after the Justice Department signaled it would oppose the deal because it could help the dominant Web company become a monopoly.

The forced abandonment of the deal represents an embarrassing setback for Google. It also damages the comeback hopes of Yahoo, which saw the deal as a way to boost revenue after rejecting Microsoft's takeover bid this year.

The Justice Department said an agreement between Google and Yahoo would probably harm competition for Internet search advertising.

Under the deal proposed in June, Google would have provided advertising for some Yahoo searches in the United States and Canada. The companies would have shared the advertising revenue, with Yahoo estimated to receive as much as $800 million annually from the agreement.

Google runs the dominant search engine, while Yahoo's and Microsoft's search efforts run a distant second and third. Microsoft, as well as some advertisers and consumer advocates, protested the partnership, saying it would let Google control a majority of online advertising and could lead to higher prices for advertisers.

"It's clear that government regulators and some advertisers continue to have concerns about the agreement," David Drummond, Google's chief legal officer, said on a company blog.

"Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long-term interests of Google or our users, so we have decided to end the agreement."

The decision represents a stark turnaround for Google, whose executives dismissed any possible antitrust problems.

But in July, the Justice Department issued "civil investigative demands" for information from the companies involved, a sign that a formal investigation had opened.

At the same time, several states announced that they were reviewing the deal.

"The arrangement likely would have denied consumers the benefits of competition -- lower prices, better service and greater innovation," said Thomas O. Barnett, assistant attorney general in charge of the department's antitrust division.

Google had argued that while it dominates search advertising, it does not dominate all online advertising.