Microsoft and Yahoo Deal on Search, At Last - Page 2

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What's waiting in Washington?

Winning over advertisers could be crucial for the deal to secure regulatory approval, as the Department of Justice threatened a fight to block a similar tie-up between Google and Yahoo last year, due at least in part to concerns from the companies' advertising clients.

Given the market-share figures, Yahoo teaming with Microsoft is unlikely to raise the same concerns as an alliance with Google, but the companies can bet regulators will take a look at the deal, just the same.

For instance, when the DoJ scotched Google's ad pact with Yahoo, which was non-exclusive and capped Google's role at handling 30 percent of Yahoo's search ads, antitrust authorities expressed concern that Yahoo would gradually fade away as a player in search. They indicated that in light of the competitive landscape of the market, Yahoo was an important player as an independent. Unlike the deal with Google, Yahoo's arrangement with Microsoft would see it exit the search market entirely.

To lay the groundwork for their cause, they've set up a Web site, ChoiceValueInnovation.com, to explain and promote the deal.

Brad Smith, Microsoft's general counsel, said the companies would start the process of filing documents with regulatory authorities next week. He seemed to expect that Google would raise antitrust objections to the deal, just as it did when Microsoft and Yahoo were batting around various partnership proposals last year, and just as Microsoft did when talks broke down and Yahoo struck the deal with Google.

"As to what a company like Google may do, that will obviously be their call," he said. "They'll make their own decision and we'll look forward to the debate."

Smith argued that Google's commanding share of the search-advertising market, which he pegged at 78 percent worldwide, would make it difficult to mount a compelling argument against the deal on anticompetitive grounds.

In a statement e-mailed to InternetNews.com, a Google spokesman said the company is "interested to learn more about the deal," but declined to comment further.

Sen. Herb Kohl, chairman of the Judiciary Committee's subcommittee on antitrust, has already raised concerns about the arrangement.

"The deal between Yahoo and Microsoft -- industry giants and direct competitors in Internet advertising and search markets -- warrants our careful scrutiny," Kohl said in a statement. "The implications of this proposed joint agreement will be closely reviewed by my Subcommittee."

Bartz acknowledged that the "deal won't happen overnight," adding that the companies plan to do their best to explain the deal to regulators in Washington, Europe and other markets where antitrust authorities are likely to give it a hard look.

The companies hope to close the deal early next year.

Ballmer also noted that the arrangements contains certain restrictions on how consumer data can be shared between the two companies in an effort to stave off the privacy concerns that inevitably arise in deals of such a large scale.

"Regulators will have to demonstrate to both consumers and search advertisers that they will actually benefit from this proposed deal," said Jeff Chester, executive director of the Center for Digital Democracy. "Will it really reduce the cost of search ads, bring tangible financial gains to consumers, and truly protect our privacy?"

Update adds remarks from conference call with Yahoo and Microsoft executives, comments from analyst, Sen. Kohl, Google, Chester.