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Yahoo, Google Delay Ad Deal

Amid an ongoing antitrust investigation of a controversial advertising tie-up between Google and Yahoo, the companies have agreed to postpone the deal to give regulators more time to complete their investigation.

"When we announced our advertising agreement with Yahoo in June, we agreed to delay its implementation until October to give regulators time to look at the details," Google (NASDAQ: GOOG) said in a statement. "As we are still in conversation with the Department of Justice, we have agreed to a brief delay in implementing the agreement while those discussions continue."

Yahoo issued a similar statement, saying that the talks with the DoJ were "ongoing."

"We have had discussions with regulators and look forward to responding to their questions about this agreement," the company said.

Through the partnership, Google would supply Yahoo (NASDAQ: YHOO) with a certain number of ads to place on its search results pages. Mindful of the anticompetitive concerns that would arise from an alignment of the top two search-advertising players, the companies structured the deal with numerous provisions designed to make it more palatable to regulators. The nonexclusive arrangement applies only to Yahoo-owned sites in the United States and Canada, and carries no minimum requirement for how many ads Yahoo must import from its larger rival.

Despite those limitations, the deal has encountered strong opposition from many advertisers, who warn that tethering Yahoo's search-ad operations with Google's will lead to a less competitive marketplace with higher prices.

The Department of Justice began its formal review shortly after the agreement was signed. Since then, attorneys general from about a dozen states have begun their own investigation, working in concert with the DoJ. The deal has also come under scrutiny from antitrust authorities in Canada and Europe, despite the companies' insistence that it won't have a significant impact outside North America.

One of the sharpest critics has been Microsoft (NASDAQ: MSFT), which spent several months earlier this year in stop-start talks to acquire Yahoo outright, or, alternately, to buy only its search division. For Microsoft, those machinations had the singular goal of breathing some life into its own search-advertising business, which is a distant third behind Google and Yahoo.

In July, Brad Smith, Microsoft's general counsel, appeared before a Senate subcommittee to testify against a Google-Yahoo partnership. He said that any agreement between Google, which commands roughly 70 percent of the search-advertising market, and its closet rival would be patently illegal and would inevitably lead to a price increase.

Google and Yahoo are quick to point out that the market determines the price of search ads, since keywords are sold at auction.

Some search marketers also remain skeptical about such claims, noting that there other factors involved in the pricing of search ads in a system that is generally opaque to advertisers.

Yahoo maintains that it will primarily use Google's ads to "backfill" its search pages. The company's president, Sue Decker, wrote in a company blog post last month Yahoo simply planned to import ads for keywords when it didn't have a relevant ad of its own.

Yahoo expects to generate an additional $800 million in annual revenue through the deal. The company has repeatedly stated that it will use that money to invest in its own advertising platform, and that it will continue to compete vigorously with Google.

Opponents have charged that Yahoo, desperate to restore value to its shareholders, would be compelled to outsource more and more of its search advertising if it can more effectively monetize queries with Google's ads. Yahoo's stock has been in steady descent since the Microsoft acquisition talks broke down. Yahoo shares are now trading at less than half of what Microsoft had been willing to pay.

The lobbying on both sides of the deal has increased sharply in the last couple weeks. In their public remarks until now, Google and Yahoo had said they planned to implement the agreement in early to mid-October. On word that the DoJ had hired Sandy Litvack, a prominent antitrust attorney who served as assistant attorney general under the Carter administration, speculation mounted that the department might be looking to pose a legal challenge to block the deal.

Some lawmakers have spoken out in support of the deal, while others have urged close scrutiny of the potential anticompetitive risks.

Spokespeople for the companies declined to comment on how long they expect the delay to last.