/ 26 April 2008

Google optimistic regulators won’t bar Yahoo!

Google believes regulators would not bar a potential business deal with Yahoo! because it would be ”non-exclusive” and falls short of an outright merger, a person familiar with Google’s thinking said on Friday.

Yahoo! is exploring alternatives to Microsoft’s $42,7-billion takeover offer, which the web pioneer has rejected for being too low.

The United States Justice Department is questioning the companies about potential competitive issues raised by a partnership, sources said this week, as Yahoo! completed a two-week test of Google’s system for selling ads alongside Yahoo!’s own web search results.

Google believes such a partnership would not be anti-competitive because it would be an arrangement in which Yahoo! would use Google’s more profitable search advertising platform to make more money for itself, said the source, speaking on condition of anonymity.

A deal would be no different from partnerships Google has with other web companies including Time Warner’s AOL and IAC/InterActiveCorp, the source said.

By contrast, Google thinks a takeover by Microsoft of Yahoo! would raise far more antitrust concerns because the combined company could corner large chunks of multiple markets, from web mail to instant messaging, the person said.

Google and Yahoo! have said they cooperated with the Justice Department and told the agency about the test.

When Yahoo! said two weeks ago that it had begun testing Google’s AdSense system, it drew outcry from critics who see Google’s domination of the market as a barrier to a deal.

Google is the top search engine, and a tie-up with number two search engine Yahoo! would give the two companies more than 80% of the market, according to ratings company Hitwise.

Neither company has disclosed the results of the test, under which 3% of United States Yahoo! searches carried advertisements using AdSense. Yahoo! president Susan Decker said on Tuesday it was ”premature” to speculate on options the company might pursue with Google.

Google remains open to further discussions with Yahoo! on hammering out a deal because no final decisions have been made, the source said.

For its part, Microsoft has said a Yahoo!-Google partnership would make the market for web search far less competitive.

”The general rule would be that if the arrangement substantially limits competition in some aspect of their business, that would be problematic,” said Aaron Edlin, who teaches antitrust law at the University of California at Berkeley.

”Collaboration that comes short of merger is much more apt to pass muster before antitrust authorities,” he said. – Reuters