Jul 15, 2008

The Senate Judiciary's subcommittee on Antitrust, Competition Policy and Consumer Rights is holding a hearing this morning to learn more about the proposed Google-Yahoo advertising agreement and its impact on the online ad market. The hearing, which just returned from a brief recess, has featured testimony from the legal chiefs at Yahoo, Google and Microsoft, along with executives from Askthebuilder.com and Yellowpages.com (both representing the consumer market).

In his opening statement, Yahoo general counsel Michael Callahan emphasized that the proposed deal to partner with Google on advertising is not a merger and that it in no way signals Yahoo's plans to exit the search business. He insisted that "Yahoo is here to stay" and that the company has every intention of fighting and winning against Google in search advertising and other arenas. He explained that the non-exclusive agreement would allow Yahoo to make similar deals with other partners.

When it was David Drummond's turn to deliver opening remarks, the chief legal officer for Google echoed most of what Mr. Callahan had already said about agreement promoting ongoing competition between the two companies. He characterized the deal as merely giving Yahoo the option to display Google's ads, not requiring it. He added that the partnership is limited to search advertising in the United States and Canada and does not include emerging markets like mobile advertising.  

Mr. Drummond also went on the offensive against rival Microsoft, accusing the company of having a desktop monopoly that he said could harm the cloud computing market. He refuted claims Microsoft has made that the Google/Yahoo ad agreement would lead to price fixing and increased costs to customers. He said that his company is looking to sell more ads, not sell ads at higher prices. 

But the most dramatic moments of the hearing, so far, came when Microsoft's senior vice president Brad Smith told Subcommittee Chairman Herb Kohl (D-WI) about a meeting he and three other Microsoft executives including CEO Steve Ballmer had with Yahoo execs on June 8th in San Jose. According to Mr. Smith (and paraphrased by me), Yahoo CEO Jerry Yang said at that meeting that the market for search advertising had two poles with Google on one end and Yahoo, Microsoft and others on the other end. Mr. Yang reportedly said that , if the Google/Yahoo deal went through, it would leave one pole with Google on one end and no one else able to compete on the other end.

When questioned, Michael Callahan who said he was present at that meeting as well, said he couldn't recall if Jerry Yang had made those remarks. But some of the Senators including Sen. Arlen Specter (R-PA) suggested that there might need to be another meeting to follow-up on that and other details of the agreement.

Tags: advertising, antitrust, competition, Google, Jerry Yang, Microsoft, privacy, Yahoo