Pending Yahoo - Google Deal Brilliantly Crafted to be Nonexclusive?
Reportedly, Yahoo and Google are close to a deal. But it’s not the deal that everyone was imagining. Seems like they have found a very clever way to avoid potential antitrust trouble.
To recap the history first: It’s been assumed that in order to fend off Microsoft as an unwanted suitor, Yahoo decided to publicly get into bed with Google. The positive results of a limited test of living together (serving Google ads on the results of searches on Yahoo.com) reportedly showed a strong potential for revenue enhancement for Yahoo, because Google, with its much larger inventory of available ads can serve up more relevant ads, thereby increasing the “click-through” rate.
Microsoft and others hastened to raise the specter of anti-trust should this (more or less) one-night stand be continued as an ongoing living arrangement. If Google supposedly controls 80% of the market for search-related ads, the line of reasoning goes, and it’ would now serving up ads on Yahoo’s site in addition to its own, then there would be a prima facie case of restraint of trade, n’est-ce pas?
Not so fast.
The folks from Googleplex came up with an ingenious idea: a non-exclusive agreement, where others can play too. In effect, an auction of auctions. Remember how AdWords works? Each vendor indicates the maximum he or she will pay for a click-through when the user types the magic words into his search argument. The highest bidder’s ad gets top billing, etc. Google is running an open auction, where the highest bidder wins. What Yahoo is reportedly planning to do is to invite operators of all and sundry ad servers to place bids for the privilege of serving up individual ads. Thus, if everyone decides to play, and a user searches on “sell large diamonds,” then each ad server (Yahoo’s own, Google’s, Microsoft’s, AOL’s, whomever) would respond with the maximum price it can offer for the privilege of serving up the ad to this potential buyer of large diamonds. The Ad Server offering the highest price gets to serve up the ad. In effect, an auction of auctions.
Rather than restricting competition, Yahoo would be offering a “level playing field” and enhanced competition. How can anyone argue with that? Non-exclusive agreements are viewed positively in antitrust law.
Just one little thing, though. By having by far the largest inventory of ads, Google is likely to win the lion’s share of these auctions.
There’s a reason those guys in Mountain View make so much money. They are just smarter than the rest of us.
Filed under: AdWords, Google, Yahoo | Tagged: AdWords, antitrust, David Sarna, Google, Search, Yahoo | No Comments »