Big Marketers Challenge Google-Yahoo dealSome of the country's biggest marketers are rallying to oppose an advertising deal between Google Inc. and Yahoo Inc., as the Justice Department considers whether to go to court to block the agreement.
The Association of National Advertisers, a trade group that represents major companies like Procter & Gamble Co. and General Motors Corp., sent a letter to the Justice Department Thursday calling the deal bad for advertisers and recommending that it be blocked. The group announced the letter on its Web site on Sunday.
The agreement, announced in June, gives Web-search giant Google the right to sell search and other text ads on Yahoo sites, sharing the revenue with Yahoo.
Whether the letter will influence federal antitrust regulators remains unclear, but it is considered a blow to Yahoo and Google because of the trade group's high profile. Until now, big marketers have been reluctant to come out against the deal publicly because of Google's growing power in the ad business.
Some large advertising agencies and midsize advertisers have endorsed the deal, however, saying they think it will make advertising on Yahoo more effective.
But in an interview, Bob Liodice, chief executive of the ANA, said the group believes the ""deal is, on balance, a negative"" for advertisers. The trade group has been studying the proposed arrangement for more than a month. Mr. Liodice said the group is concerned that the deal could raise the price of search advertising. It also is worried about the ""concentration of power"" that the alliance represents, he said. Google and Yahoo agreed not to implement their deal for as long as 3½ months after its announcement to give the Justice Department a chance to review it. But the companies have said they plan to push forward in about a month.
Yahoo said in a statement that the company was ""disappointed"" with the ANA's move but ""remains steadfast in its belief that this deal -- in which prices are determined by demand-driven auctions, and not by collaboration between Yahoo and Google -- will strengthen Yahoo's competitive position in online advertising.""
Google spokesman Adam Kovacevich said ""numerous advertisers"" have supported the agreement, which will help advertisers show more targeted ads across more inventory. ""Advertisers care far more about getting a good return on their advertising dollar than they do about buying cheap ads that don't bring in customers, and this deal will clearly help advertisers reach Yahoo users more efficiently,"" he said.
Yahoo executives are banking on the deal -- struck as Yahoo was seeking alternatives to selling its search business to Microsoft Corp. -- to help dig it out of a multiyear slump and restore investor confidence. Yahoo shares closed Friday at $18.08, down from around $30 after Microsoft's failed $31-a-share bid for the company in January.
Yahoo executives have estimated that the deal, which isn't exclusive and allows Yahoo to select when to use Google ads, could generate $800 million in annual revenue for Yahoo.
Since the partnership was announced in June, many online advertising executives have expressed concerns that it could diminish competition and boost prices in the market for ads that appear alongside search results.
Google and Yahoo dispute that, arguing that since search ads are sold through an auction process, neither company can set prices. U.S., European and Canadian regulators are examining the agreement.
Google and Yahoo combined sell more than 80% of U.S. search ads, which account for the largest part of the online-advertising business. Google alone has more than 70% of that business. The Justice Department has been reviewing the deal for months, questioning some ad executives and advertisers about what it would mean for the advertising business.
The department, which doesn't comment on pending reviews, is gathering depositions and evidence that could be used to block the deal if a decision were made to do so, people close to the matter say. But taking testimony in the course of a review isn't unusual, and does not necessarily indicate antitrust regulators will challenge the agreement.
As they weigh comments from outsiders, regulators often discount the views of competitors who complain about a deal, as Microsoft has done. They are likely, however, to listen closely to customers, in this case major advertisers, so the association's letter could be a significant hurdle.
Microsoft and Michael Kassan, a longtime advertising and media executive who is now consulting for the company, have been lobbying Madison Avenue's advertising and media-buying executives, as well as marketers, to oppose the Yahoo-Google alliance, according to ad executives. In testimony during House and Senate hearings about the deal, Microsoft general counsel Brad Smith argued that it would lead to fewer choices and higher prices for advertisers.
Mr. Liodice says that while Microsoft raised its concerns about the deal, that wasn't the reason ANA chose to scrutinize the agreement. ""We don't want to have anyone think that Microsoft was the instigator or influencer"" of this action, he said.
The ANA said it began discussions with its members shortly after the accord was announced. It says it talked several times to both Yahoo and Google.
ANA's board, made up of well-known marketing executives including Brian Perkins, Johnson & Johnson's vice president of corporate affairs; Stephen Quinn, chief marketing officer at Wal-Mart Stores Inc; and Betsy Lazar, executive director of media and advertising for General Motors Corp., approved the group's move.
The ANA has a powerful lobbying arm in Washington, D.C. It has taken an active role in advertising issues, such as defending food companies from growing public pressure to curtail advertising as a way to address rising childhood obesity rates. The trade group has also been heavily involved in defending direct-to-consumer advertising of prescription drugs.
Last year, the group raised questions about Google's acquisition of display-advertising company DoubleClick, petitioning the Federal Trade Commission to review the merger. But the FTC approved the deal.
By: Suzanne Vranica & Jessica Vascellaro
Wall Street Journal; September 8, 2008
