Yahoo and Microsoft finally hooked up, like two aging singles after years of on-again off-again flirting. They announced a 10-year search and online ad deal this morning.
The question for armchair lawyers is: Will the government's more trigger-happy antitrust regulators do anything to stop it?
Legal Pad called up Bob Lande, the co-founder of the American Antitrust Institute. Lande said that normally when the second and third leading players in an industry combine like this, regulators jump on the deal. But because both Yahoo and Microsoft are so far behind the top dog, Google, in search advertising, Lande said it shouldn't be a big issue.
"Their basic argument — letting two little guys compete with Google — is a good one," said Lande, who often urges regulators to scrutinize deals. "Normally number two and three cannot merge unless you’re facing a colossus like this one."
Others beg to differ, after the jump.
Here are the relevant numbers on market share in search advertising: In the last quarter, Google got 76 percent of search ad dollars. Yahoo got 19.6 percent and Bing, Microsoft's new search engine, got 4.4 percent. (Those numbers are from research (.pdf) by Efficient Frontier.) That means that the new YaSoft will control 24 percent of the search ad market. Although most of the mainstream media reports focus on the Internet search market (in which Google has a 65 percent share), the search ad market is probably more important since that's where prices could actually go up for advertisers and really create an antitrust problem.
Still, some legal experts are telling reporters that the deal will draw scrutiny from regulators.
The Wall Street Journal quotes Stifel Nicolaus analyst Rebecca Arbogast saying, "You're basically letting one of the [three major] companies get out of the business, and you end up with, eventually, two. That will give the government pause."
Of course, we all remember what happened last time Yahoo tried to do a search partnership. Antitrust regulators threatened to sue to block the deal last fall. But that was with Google and its commanding market share.
Brian Pass, a Sheppard Mullin partner who advised Yahoo on the Microsoft deal as well as the failed Google deal, said this one will be different.
"It's a very different position from a competitive perspective when the clear number one is not involved in the deal," said Pass, who noted that he was not an antitrust expert. Skadden Arps is handling antitrust issues for Yahoo.
On the other side, Perkins Coie was representing Microsoft.
Brad Smith, Microsoft GC, said in a conference call that the deal will be good for competition.
"We have been getting unsolicited feedback this morning from publishers and advertisers that this is the right kind of step that is going to create a more compelling and competitive number two in the marketplace," he said.
So what does Google think of all this? The company's antitrust chief Dana Wagner gave us the official company statement: "There has traditionally been a lot of competition online, and our experience is that competition brings about great things for users. We're interested to learn more about the deal."
— Zusha Elinson