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Google Ends It’s Advertising Deal with Yahoo!

In a move that’s not terribly surprising, Google announced via blog post today that it is scrapping its search advertising deal with Yahoo. Google’s decision puts Yahoo’s search business back in play and may bring Microsoft back into the picture.  In separate statements, and the Department of Justice responded. The DOJ noted that it would file an antitrust lawsuit if Google and Yahoo went forward with a deal. Yahoo had planned to use Google’s ads if the monetization rates were better than its own. According to David Drummond, Google’s Chief Legal Officer the headaches just didn’t make sense.

After four months of review, including discussions of various possible changes to the agreement, it’s clear that government regulators and some advertisers continue to have concerns about the agreement. Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn’t have been in the long-term interests of Google or our users, so we have decided to end the agreement…We’re of course disappointed that this deal won’t be moving ahead. But we’re not going to let the prospect of a lengthy legal battle distract us from our core mission.

The move comes just days after Google and Yahoo submitted a proposal that pared back the terms of the deal. In fact, analysts were handicapping the revised Google-Yahoo deal as if it would clear the Department of Justice’s concerns.

In many respects, the Yahoo deal just wasn’t worth Google’s time. The deal between Yahoo and Google was cooked up to block Microsoft’s takeover of Yahoo. Ironically, Google’s move may attract Microsoft back to Yahoo to craft a search partnership. Google’s exit from its proposed partnership with Yahoo does clear the way for what could be a search partnership with Microsoft, which still maintains that some sort of deal makes sense. According to some Wall Street prognosticators, a deal with Microsoft is certainly back on the table. As of yesterday, the probability of Yahoo selling its search business to Microsoft was about 10 percent. Those odds are likely to increase given Google’s move.

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