Google Declines Yahoo Search Deal

Amber Farley - November 11, 2008

Yahoo’s fate has been a hot topic of discussion for most of 2008. Earlier this year, there was talk about Microsoft acquiring Yahoo for $45 billion. On June 12th, Google announced an advertising agreement that gave Yahoo the option of using Google to provide ads on its network of websites in the U.S. and Canada.  However, on November 5th, it was announced that Google decided to end the agreement with Yahoo Search, in order to avoid a challenge from the U.S Justice Department.

David Drummond, Senior Vice President and Chief Legal Officer at Google, said in the Google blog, “After four months of review, including discussions of various possible changes to the agreement, it’s clear that government regulators and some advertisers continue to have concerns about the agreement. 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. Google plans on staying focused on what they do best: creating useful products for our users and partners.”

The partnership between Google and Yahoo was originally discussed to prevent Microsoft from purchasing Yahoo. The acquisition of Yahoo by Microsoft would have proposed a more serious competitor to Google.  To avoid this acquisition, Google’s management took a risk by agreeing to the Yahoo partnership, knowing the merger would intensify the government’s scrutiny of Google’s dominance.  Many industry professionals feel that Google already has too much power, and it doesn’t seem to be slowing down anytime soon. According to a recent article in Ad Age, Google’s search-query share hit 63% in August. 

Now that Google declined the Yahoo search deal, many still believe Microsoft will make another attempt to purchase Yahoo’s search engine, especially now that it can be bought for much less then the originally proposed $45 billion.  Another theory is that Yahoo will join forces with a combination of AOL, Ask.com, and News Corp. Most marketers want to see healthy competition in the search engine space. Healthy competition results in lower prices and a more even playing ground.  By joining forces with any of the above mentioned, Yahoo could become the second biggest player in the search engine space.