5 Reasons Why the Feds Won't Stop Google-Yahoo

This corporate relationship could split at any time.


Many might question whether Yahoo is wise to strike up its new relationship with Google. And it's easy to see why regulators would find the deal unsettling, given Google's increasingly dominant role in the search business. But here are reasons to think regulators won't come between the two:

1) Yahoo is free to date others. This is not marriage, engagement, or even going steady. Yahoo simply agreed to date Google by using the search giant's ad technology when it wants. Granted, Yahoo appears starry eyed, talking of the deal bringing $250 million to $450 million in incremental cash flow. But Google sniffs that the couple remains uncommitted, and that if Yahoo's infatuation fades, the portal would be free to wander.

2) They've dated before. Starting in 2000, Google provided all the search technology for Yahoo. Then Yahoo bought a company called Overture that actually helped pioneer search advertising but had been outdone by Google. It was a complicated relationship as the competitors tried to cooperate, with lawsuits and settlements resulting. By 2004, Yahoo thought it had the tools to go it alone and ended the deal with Google. Turns out it was only a temporary breakup.

3) Yahoo will date others. Yahoo will still have its own business in display ads, where it is bigger than Google. Yahoo emphasizes that search advertising is converging with Web display advertising. That's making for a much bigger overall market and should ease concerns about Google's dominance of search ads. A bigger concern would be marrying Yahoo's display ads with Google's search advertising.

4) Dating is comforting in hard times. A slowing U.S. economy could make U.S. antitrust regulators hesitant to stand in the way of deal that, at least in the short term, could shore up Yahoo's finances. European regulators are more of a wild card, and they've shown increasing concern about Google's dominance in search. At least this deal doesn't involve Microsoft. In fact, in the eyes of Microsoft-averse Europeans, it could even be seen as a balance to the software company's strength.

5) Google's dominant charm. Yahoo isn't giving up its search business. Besides, any advantage that Google gains from the link to Yahoo's search business would be merely incremental for the Google juggernaut. Google held 68 percent of the search market in May, versus 20 percent for Yahoo, according to Hitwise. Google's share has climbed 3 percentage points in a year. Yahoo and Microsoft continued to see their market shares fall, despite plowing billions into trying to compete with Google. An advertising deal between Yahoo and Google won't change that.