07 October 2008

Google and Yahoo! vs. the advertising world

The controversy surrounding the advertising deal between Google and Yahoo! appears to be no closer to resolution, with growing fears of the dominant power that Google could possess in the advertising industry. As a result, plans to begin the deal are on hold until the Justice Department has completed its investigation into the arrangement.

The Association of National Advertisers, an organisation representing many of the large advertisers in the US and Canada, has asked the Justice Department to block the deal. Industry associations and advertising agencies are particularly concerned about the potential dominance that Google could garner in the advertising industry. In addition, queries regarding Google's auction system for pricing search ads have been raised, as concerns that Google will increase its prices grow. Google has rejected this claim, stating that it does not actually set these prices.

Currently, Google is the largest search advertising organisation in the world, but the difficulty surrounding its deal with Yahoo! has lead to concerns with government regulators and industry agencies potentially slowing the business moving forward.

The deal initially struck between Google and Yahoo! allows Yahoo! to place ads sold by Google on some of its search queries; specifically aimed at the United States and Canada. Google and Yahoo claim that this can only benefit the users and advertisers. Google has defended the deal and, despite questions raised on anti-trust issues, claims that the deal was created with specific intentions to meet anti-trust laws in the US.

Furthermore, decriers point out the unfair advantage the deal could bring for the two companies regarding industry competition. As it currently stands, Yahoo! is the second largest advertising organisation globally - and many advertisers and agencies expect the deal to turn Yahoo! into a stronger competitor.

However, there is still some uncertainty as to whether the deal will increase will weaken or strengthen Yahoo! The contract is expected to bring Yahoo! $250 - $450 million in additional operating cash flow, in the first year.

As planned, Yahoo! intends to continue using the most popular search terms to place its own ads. Others argue that once Yahoo! has begun to gain success with increased revenue from Google, this will lead to an increase in the percentage of ads that come from Google to further improve its own revenue. As a result, the Justice Department may have an input in restricting the number of ads that Yahoo! use from Google.

Despite the growing complaints from major advertisers with Google, these companies still tend to place most of their online spending with the search engine because it garners the best returns for marketers.

The Justice Department expects to have a result to the case by the end of October 2008.

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