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Google And Microsoft Spar Over Yahoo Ad Deal

The two tech giants trade statements ahead of today's Congressional hearing on the Google's advertising pact with Yahoo.

"Google and one of its chief rivals, Yahoo, have teamed up in a deal that affects approximately 90 percent of all search advertisements sold in this country," Smith's statement says. "If permitted to proceed, we believe the Google/Yahoo agreement would effectively create a monopoly in search advertising -- to the extent one does not already exist -- and further reduce competition."

Smith goes on to attack the analogy both Kordestani and Drummond cite to help explain the Google-Yahoo deal, a scenario in which Toyota sells technology to GM.

"... Google has represented that this kind of arrangement is commonplace in many industries and has compared the deal to Toyota selling its hybrid engine technology to rival General Motors," Smith's statement says. "This analogy simply does not hold water. Google is not selling Yahoo a part (analogous to a hybrid engine) that Yahoo needs to build a product (a completed car). Google is replacing Yahoo as the seller of the product itself -- search advertising. If anything, it is more like Toyota selling GM the whole car and the two companies agreeing to sell Toyotas in GM showrooms in instances where Toyotas can fetch a higher price! The reality is that GM and Toyota could no more enter into such an agreement than Google and Yahoo. This is anything but a standard supply agreement."

Smith's remarks also suggest that approval of the deal would further embolden Google, with access to even more consumer data, to push the privacy envelope.

At the conclusion of his planned testimony, Smith acknowledges "that the presence of Microsoft at this hearing must strike some as ironic, given our own antitrust history." Nonetheless, he says Microsoft believes the deal raises serious concerns and may well be illegal under anti-trust law.

Others share Smith's doubts.

Benjamin Edelman, assistant professor at the Harvard Business School and a noted technical researcher, prepared testimony about the Google-Yahoo deal. But when the hearing was rescheduled, he could not attend. Though he won't be appearing at the hearing, he published his planned remarks on his Web site.

Edelman believes the deal will increase costs to advertisers, leave consumers without recourse if they disagree with Google's content policies, leave publishers with no viable alternative to Google should Google decide to pay less, and impose anti-competitive API restrictions.

Edelman states: "Once Google controls a substantial share of inventory at Yahoo, advertisers' search advertising options will be severely limited: Save for Google, advertisers will have few viable choices for search advertising. Google will then obtain substantial power to increase prices: If Google increases prices, advertisers will be unable to shift to a competing provider to obtain a comparable quantity of traffic. Shifts to other kinds of advertising -- be they banner ads, TV, or print -- are similarly unavailing; for typical online advertisers, these are poor substitutes."

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