Google, Yahoo Defend Ad-Sharing Deal

Executives from Internet-search giants appear at Senate Judiciary Committee Antitrust Subcommittee hearing.

Google and Yahoo defended their ad-sharing deal at a Senate Judiciary Committee Antitrust Subcommittee hearing in Washington, D.C., Tuesday, with some sparks flying as Microsoft dueled with the two companies over whether the deal was an anticompetitive consolidation of the search business that Microsoft is trying to get a bigger piece of.

The deal, which has been under attack by Microsoft as anticompetitive, would instead benefit consumers, advertisers and, admittedly, Google and Yahoo, the companies told legislators, while continuing to protect surfers’ online privacy.

Michael Callahan, general counsel for Yahoo, and David Drummond, chief legal officer for Yahoo, said they would continue to compete vigorously for online search. Callahan said the deal is not a merger, and it will not give Google control over 90% of online search -- Google currently has about 70%, Yahoo about 20%-25%. Callahan added that Yahoo would try to grow that.

Chairman Sen. Herb Kohl (D-Wis.) said critics of the deal were characterizing it as Google paying for Yahoo not to compete as vigorously. Callahan said this was not the case and his company was not ceding any of its own algorithmic-search business.

Brad Smith, general counsel of Microsoft, jumped in to say that Yahoo chief executive Jerry Yang said at a June 8 meeting with Microsoft that the deal would mean that there were currently two poles in search -- Google on one side and Microsoft and Yahoo on the other. With the deal, Yang said, Yahoo would join Google's pole.

Kohl began the hearing by posting the question of whether the deal reduced Yahoo to nothing more than the newest satellite in the Google orbit. Smith said the answer was obviously yes.

Callahan, who said he was also at that June 8 meeting, would not characterize Yang's comments but asserted that Yahoo would continue to compete aggressively for search. Kohl said that appeared to contradict the company's own top executive.

When pressed, Callahan said he didn't agree with Smith's characterization of Yang's comment and didn't recall the "one-pole" comment. Sen. Arlen Specter (R-Pa.) reminded him that he was under oath and said the committee might need another hearing to follow up on the issue.

Drummond seconded Callahan's defense of the deal as a win-win for consumers, advertisers and his company. He said the nonexclusive deal would create new efficiencies that will allow advertisers to better target their messages, pointing to ad agencies like Publicis and Digitas, which support the deal.

Both Callahan and Drummond said the companies would not fix prices and that more money would not come from raising prices per ad, but from more people clicking on more ads.

Matthew Crowley, chief marketing officer of AT&T's, took issue with the rosy picture, saying that the deal would give Yahoo reason not to compete and that he would wind up paying higher rates for less inventory on Yahoo.

Specter, former chairman of the committee, said Crowley's arguments were "impressive," and that it was hard to accept the argument that control of 90% of the market would not be anti-competitive.

Callahan countered that the 90% figure would only be relevant if Yahoo were getting out of the search business, which it is not.

Microsoft, a latecomer to the search business, made a bid to buy Yahoo. Yahoo investor Carl Icahn supports the deal and is waging a proxy fight for control of the board.

The House Judiciary Committee is scheduled to hear from some of the same witnesses Tuesday afternoon at its own hearing on online advertising and the deal.