Google-Yahoo tie-up draws fire on Capitol Hill

A proposed online advertising tie-up between Google and Yahoo drew fire at a Senate antitrust hearing Tuesday even as both companies defended the alliance as positive for consumers and businesses.

Microsoft senior vice president and general counsel Brad Smith delivered a scathing assessment of the tie-up, saying it would crimp competition and give Google "unprecedented" control of the gateway to the Internet.

"If search is the gateway to the Internet, and most believe that it is, this deal will put Google in a position to own that gateway and the information that flows through it," Smith told the Senate Judiciary subcommittee hearing.

Google technology would be used to better target ads posted on a portion of Yahoo search pages.

Smith said the tie-up would give Google "an unprecedented level of control over advertising for search on the Internet -- up to 90 percent potentially of all search ads."

The result, he said would be higher prices for advertisers, and "put Google in control of the gateway to the Internet ... raising significant privacy implications."

"Never before in the history of advertising has one company been in the position to control prices on up to 90 percent of advertising in a single medium. Not in television, not in radio, not in publishing. It should not happen on the Internet."

David Drummond, Google's chief legal officer, argued that "the online advertising marketplace is competitive, robust and dynamic" and that the tie-up would be beneficial to Internet users and advertisers.

"This arrangement is not a merger, nor a joint venture," he said.

"Why did Google enter into this agreement? We think we'll make money of course, and we think we'll do so by giving millions of consumers, publishers, and advertisers access to more relevant online ads. Where Google's system may provide better results, Yahoo will be able to use it to complement its own advertising program. The whole system becomes more efficient."

Yahoo general counsel Michael Callahan said he wanted to dispel "quite a few misconceptions" about the plan.

"This is not a merger. Far from it -- we will increasingly compete with Google, and they with us," he told the hearing.

"This is a commercial arrangement between two companies who will remain autonomous and compete aggressively -- in search and display advertising, mobile, news, e-mail, finance -- you name it."

Callahan added that "the claim some have made that Yahoo and Google are price fixing is entirely false. Prices for search terms are set by open and fair market-based auctions, and advertisers only pay when consumers click on their ads."

The hearing was called after Yahoo spurned a takeover by Microsoft and rushed into Google's arms in the hope an alliance will improve its sagging fortunes.

The Yahoo-Google deal would put the Internet search king's expertise to work pumping money from advertising posted next to Yahoo Internet search results.

Matthew Crowley, chief marketing officer at Yellowpages.com, told the panel that Google accounts for 70 percent of all search advertising -- the text ads that appear when a user searches for a particular subject.

He added that "competition from an independent Yahoo is the only thing that keeps Google from achieving complete control over the online search advertising business."

The tie-up, Crowley said, "would do nothing to ensure a vibrant, innovative, competitive check on Google's dominance -- it would merely create a dependent and atrophying Yahoo."

Subcommittee chair Senator Herb Kohl pledged close scrutiny of the deal.

"The history of the development of the computer industry gives us reason to be cautious as we evaluate this deal," Kohl said.

He added that the Microsoft software antitrust case "teaches us the importance of acting and acting early to ensure that competition is preserved in this vital sector of the economy."

Senator Patrick Leahy expressed concern about the deal giving Google access to private user data.

"The ability of a single company to dominate the online advertising marketplace also raises the specter that one company will accumulate vast amounts of personal viewing data," he said.

© 2008 AFP

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