What now for online ads landscape after Google/Yahoo! deal collapses?

5 Nov 2008

Yahoo! has expressed disappointment at global internet giant Google’s decision to walk away from a joint advertising deal. Google got cold feet after failing to win US Government support.

This is the first time that Google visibly walked away from any deal, and it has left advertising and internet businesses wondering if the back-down will hurt Google’s long-term interests.

Under the original agreement, Google would place ads on Yahoo! pages and searches. Rivals like Microsoft have argued that such a deal would give Google too much power.

Future Human

The deal was also opposed by trade group, The Association of National Advertisers.

Yahoo! has expressed disappointment at Google’s decision to walk away from the deal rather than defend it in court, but said it continues to believe in the benefits of the agreement.

Google notified Yahoo! following an indication from the Department of Justice that it would seek to block the deal.

In a statement, Yahoo! said a services agreement with Google would have enabled it to accelerate its investments in its top business priorities through an infusion of additional operating cash flow.

“This deal was incremental to Yahoo!’s product roadmap, and does not change Yahoo!’s commitment to innovation and growth in search.”

Google’s decision was, however, welcomed by the Centre for Digital Democracy as a final wake-up call to Google and regulators of the growing online ad industry consolidation.

Jeff Chester executive director of the Centre for Digital Democracy said that much is at stake over the competitive landscape for online advertising.

“For too long, policy-makers and regulators have failed to address the growing consolidation of control in the online advertising market,” Chester said.

“Today’s announcement in its own way underscores what we have been telling officials: that a very tiny handful of global digital giants – particularly Google – are increasingly dominating the most prevalent way online publishing is financially supported (‘monetised’).

“The future diversity of online content – including news – is ultimately connected to the key question of whether one or two companies globally control the flow of most ad dollars tied to our use of broadband on PCs, mobile devices and perhaps even digital TVs.

“By agreeing to operate a significant part of its leading competitor’s search ad business, Google would ultimately further diminish Yahoo!’s ability to provide some choice in the marketplace. 

“Frankly, Google’s attempt to largely deny that this – or any other deal it makes – raises public interest concerns, illustrating how it must be closely watched by regulators to protect the interests of both consumers and competitors,” Chester said.

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years