Google and Yahoo Update: Alliance has crumbled

CNNMoney.com has just reported that Google, faced with antitrust regulators and legal obstacles, has backed out of their proposed search advertising deal with Yahoo.

Deal

The deal between Google and Yahoo would have allowed Google to expand their paid search marketing presence through ads placed on Yahoo search pages. In turn, Yahoo would have gained an estimated $800 million in annual revenue, which is substantially higher than the $47.5 billion offer from search advertising competitor Microsoft. Now, Yahoo will need to find an alternate means of recouping losses that have left its market price at half its previous value and of raising revenue that will improve its floundering status among search advertisers. If the deal were to have gone through, Google and Yahoo would have controlled over 80% of search advertising in the U.S.–which is precisely the reason why consumers, competitors and the government expressed concerns about price-fixing the paid search market and a possible monopoly arising over e-commerce.

No Deal

Some have speculated that Yahoo will be forced to renew talks with Microsoft and to consider selling shares at a much lower asking price than was offered the first time around. CNNMoney also reports that “Yahoo has been discussing a possible acquisition with AOL’s corporate parent, Time Warner Inc.” Walking away from the table has left Google no better or worse than before. The search giant had everything to gain and nothing to lose from the partnership. As Google forges ahead to “drive down the road of innovation” (as stated by Google’s chief legal officer David Drummond), Yahoo is left reeling at another lost opportunity. Microsoft, on the other hand (or other scale, in the balance of power, if you will) had been concentrating on driving a wedge between its other two competitors by actively and vocally opposing the partnership. Many expect Microsoft to come back to the table to negotiate with Yahoo soon enough. While Google has walked away relatively unscathed, some critics argue that damage has been done to brand reputation, nonetheless.

Google’s attempt at paid search advertising domination is “damaging its brand,” says Jeff Chester, executive director of the Center for Digital Democracy. “The perception of Google has changed.” But has it? As Google has grown larger, expanded its online presence and pioneered the way into new revenue-rich territories, the move to partner/control/attain Yahoo was almost expected, unsurprising. And there is another way to look at the loss, one which is framed in such a way that Google ultimately comes out a victor, undeterred in its efforts at expansion. Sorry, Yahoo. It’s rather difficult to drive down the road of innovation when Google controls all the traffic lights.

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