Update: Google & Yahoo Search Deal Enters Undefined Territory

Back in April, we first discussed the trial of a search deal between Google and Yahoo in our post, Yahoo Tests Google Search Ads: A Search Rivalry. Now, Google and Yahoo have made it official: Google will be providing Yahoo ad technology and making the two companies’ instant message systems compatible for interoperability.

The deal, originally thought to be a clever means of encouraging Microsoft to increase their buyout offer to Yahoo, is now the center of attention even after the recent demise of the Microsoft-Yahoo buyout deal. And, after months of proxy challenges, buyout offers and complicated corporate exchanges, the success of this deal hinges on something as simple as a definition.

The Basics of the Yahoo-Google Ad Deal:

• • The deal only applies to Yahoo search results and web properties in the U.S. and Canada. (1)

• • The deal is non-exclusive. Yahoo can display paid search results from third parties and/or their own network. (1)

• • The term of the agreement is up to 10 years. A four-year initial term and two, three-year renewals at Yahoo’s option.(1)

• The agreement requires Yahoo to pay Google a termination fee of $250 million (subject to some adjustments) if the agreement is terminated because of a change in Yahoo’s control within 24 months. (1)

The details seem straight-forward but the buzz is all about ‘monopoly.’ Will antitrust issues be raised by the Yahoo-Google ad partnership? Well, before anyone can argue that Google is hindering competition or monopolizing the market, you have to define their market. This is really just a basic definition of Google’s business. What is it that Google does primarily? What is their industry?

Is Google’s relevant market advertising, including traditional offline advertising as well as online ads? Google has expanded into traditional media such as print, so maybe a broad definition is required. (2) Or, should Google’s market be defined more narrowly as online advertising, or even more narrowly as search advertising.

This definition will make all the difference for Google. For example, if Google’s relevant market is defined in its most narrow form—search advertising—then their market share alone, without regard to the Yahoo deal, could raise antitrust concerns. With over 60% of the searches performed on Google according to comScore, Google could be capable of anti-competitive behavior because of their dominance—and a partnership with Yahoo would only add to their power with regard to search advertising.

The broadest definition including all advertising would leave Google in a good position. There are a whole range of competitors and Google isn’t in a position to dominate the entire advertising market with or without the Yahoo partnership. Even if Google was the dominant player in search advertising or online advertising, that would account for only a small percentage of the overall advertising market. (3)

This is one item regulators are likely to be debating for many months to come. And, it will likely be this definition that will dictate the success or failure of antitrust allegations and, possibly, the viability of the Yahoo-Google search partnership.