The battle between two of the biggest tech firms in our history continues to wage on: Microsoft vs. Google
The Google/Yahoo Ad Deal
Google’s ad deal with Yahoo, announced in July, is to be put into effect next month. Currently, it is still under regulatory review as it would represent a HUGE chunk of the search advertisement market – we’re talking somewhere in the 90% range. Google already owns 70% share in the search advertisement market and is already the number one most used search engine.
Guess who is trailing, although far behind, in second? That’s right, their newest partner: Yahoo Inc.
If that’s not MONOPOLY, how else would you define that term? Wasn’t that term most popularly associated with the real estate board game where the goal was to own every piece of property in order to win? I am no expert, but when you own 90% of the properties, I think the game is pretty much over.
But a monopoly , by defintion controls only the supply side of a transaction. In this case, Google’s platform remains an open consumer auction. If prices go too high, users will stop buying (demand elasticity). As a monopoly, you can charge much higher prices than you otherwise would be able to because you don’t have a competitor who can undercut you for less profit.
Google’s “voluntary” sumbission review of this deal to regulatory bodies is likely to get approved.
No wonder Microsoft is upset – this deal was supposed to be theirs.
Google landed a huge blow by helping Yahoo fend off the takeover by Microsoft earlier this year and then came back and landed an uppercut by signing the ad deal with Yahoo shortly after.
The deal now meant some ads that visitors see on Yahoo’s search results page would be supplied by Google. Yahoo expects it will bring in $800 million annually in additional revenue because some search phrases get better results on Google, and some search phrases draw a plentiful number of advertisers on Google but none at all on Yahoo.
Last Thursday, Google’s Tim Armstrong, President of Advertising and Commerce in North America had this to say:
Question: Will the Google-Yahoo! agreement raise ad prices?
Question: Yahoo! claims they will make an extra $800 million from this deal. Does that money come out of advertisers’ pockets?
Question: Can Yahoo! pick whose ads to show based on who has the highest price?
Answer: No. Under the terms of our agreement Yahoo! won’t be able to see the current auction prices for Google ads, and Google won’t be able to see Yahoo!’s prices.
Question: Does Google’s quality score effectively raise prices for ads?
Google’s critics — led by Microsoft, of course had something to say. After the one-two blow from Google earlier this year, they took this as a chance to depict Google as a price-controlling monster (Google and Microsoft have a lot of similarities, it seems). In July, Brad Smith, Microsoft’s general counsel said, “Never before in the history of advertising has one company been in the position to control prices on up to 90 percent of advertising in a single medium.”According to Mr. Smith, the $800 million revenue gain for Yahoo is going to come “out of the pockets of American businesses, big and small, who will pay higher prices.”
So how did Google respond?
On September 19, Tim Armstrong had a few more things to say:
Question: Is this agreement bad for competition?
Question: Some claim that Google and Yahoo! will have a combined 90% of the search advertising market. Is this true?
Question: Will Google benefit from access to Yahoo!’s user data?
Answer: No. We have taken steps in the Yahoo! agreement to make sure that neither company has access to personally identifiable user information from the other company.
Question: Over time, will Yahoo! just outsource more and more of its ads to Google and cease to exist as an independent ad platform?
Question: Once the deal is implemented, why would advertisers keep advertising on Yahoo!?
With this new deal, Google now has access to the insight of the searches and the activities of Yahoo! users. So not only are they going to be receiving this information to further their research and battle tactics in the search advertisement war, they’re going to get paid BIG for it!
Google may not have direct access to Yahoo’s data but they have access to their adwords and with that, can drum up some very useful user Yahoo user information.
Wow. Imagine getting paid by your enemy to receive their intel…
For the short term, this will open up much-needed revenue for Yahoo and most likely benefit the overall consumer, as Google has promised. This may also lower prices of auctions as inventory has now increased.
But in the long-term, just like Facebook, MySpace, Digg, Aol, and especially Ask, Yahoo will rely heavily on Google to provide them a large portion of their revenue. So what happens when it’s time to renogotiate these deal-breaker contracts?
Looks like Google will most likely be setting the terms then…
Google, you really are the smartest guys in the room.
