Was the Yahoo/Google deal a ploy to weaken Yahoo?

With the DOJ expressing skepticism over Yahoo's agreement to sell search ad space to its biggest competitor, a letter from a key US senator urging action could be preaching to the choir. What's interesting is that senator's theory.

In a letter to the Justice Department's antitrust chief yesterday, Sen. Herb Kohl (D - Wisc.), chairman of the Senate Antitrust Committee, advised the Dept. to maintain a close watch over Google and Yahoo as they initiate their search advertising deal, for two reasons: The first is something discussed quite often, that the deal could be used to drive up the price of contextual search advertising.

But the second is something that has been mentioned, but not fully explored: the notion that Google made the deal in bad faith, as an anti-competitive measure to maintain Yahoo's subordinate position in the marketplace.

"Many interested parties are also apprehensive that if the transaction is consummated, Yahoo will have less incentive to compete against Google, as it will rely upon its main competitor for a significant increase in its revenue," reads Sen. Kohl's letter to Assistant Attorney General Thomas Barnett. "Therefore, critics contend that an advertiser will have an incentive to bypass Yahoo entirely and only bid for Google advertisements since an advertisement purchased with Google could be placed on both Yahoo and Google's search result pages."

Furthermore, Kohl goes on, as Yahoo receives more and more revenue from Google, it will only gain further incentive to give Google better placement. That could water down the value of Yahoo pages for other advertisers, in a situation that eventually leads to Yahoo never retaining a position as a major player in search advertising.

In its "Facts about the Yahoo-Google advertising agreement" microsite launched last week, Google explains its view that the deal is only beneficial for competition, and potentially beneficial for Yahoo.

"Yahoo has stated that it will reinvest the additional revenue from this agreement into improving its user services and competing vigorously against Google, Microsoft and other companies," the site currently reads. "This gives all companies the continued incentive to keep improving and innovating. The agreement won't affect Yahoo's natural search results. Yahoo will continue to operate its own search engine, and Google's share of search traffic will not increase. In addition, the agreement is non-exclusive, meaning Yahoo could make a similar deal with another company."

Kohl suggests that the Dept.'s Antitrust division monitor the agreement closely, and intervene when necessary to protect the competitive state of the online advertising market. Last month's hiring by the DOJ of Barnett's own predecessor during the Carter administration, former Disney vice chairman Sanford Litvack, was a clear indication that preparing to intervene may be exactly what Barnett has been preparing to do anyway.