Microsoft Attorney: Jerry Yang Said Google-Yahoo Merger Would Kill Competition

Broadband's Impact July 15th, 2008

, Former Reporter-Researcher, BroadbandBreakfast.com

By William G. Korver, Reporter, BroadbandCensus.com

WASHINGTON, July 15 – Yahoo founder Jerry Yang said that if Yahoo and Google agreed to merge, competition in the search engine industry would cease, Microsoft general counsel Brad Smith testified before a Senate Judiciary subcommittee on Tuesday.

Yang made the comments in a meeting with Microsoft executives on June 8, according to Smith, who attending the meeting.

Yang’s view was that if Google remained on one pole, and Yahoo and Microsoft were on another, competition in the industry would continue, according to Smith. But With Yahoo and Google aligned in a close business relationship, Smith said, the viability of Microsoft would diminish.

The result would be a “monopole,” said Smith.

Smith recounted the meeting to a rapt audience as one of the witnesses for the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights hearing on “The Google Yahoo Agreement and the Future of Internet Advertising.”

After being reminded that he was under oath, Smith, also a senior vice president at the Redmond, Wash., based software giant, adamantly reaffirmed his statement. He said that no single company should control 90 percent of a market owing to an agreement with its largest competitor.

Smith said that the government should block a June 12 agreement, between Google and Yahoo, in which Google and Yahoo announced a collaboration on a range of search technologies.

At first, Michael Callahan, general counsel of Yahoo, disagreed with Smith’s “characterizations” of Yang’s views. When pressed by senators on exactly what Yang said, Callahan said he could not recall what Yang said during the “long meeting.” Callahan was also present at the meeting with Yang and Smith.

Callahan did reiterate Yahoo’s commitment to remaining in the search market and remaining a Google rival.

Callahan said the advertising agreement did not force Yahoo to provide a certain number of Google ads on their web site and does not bar Yahoo from entering into deals with other companies.

Furthermore, Yahoo’s agreement with Google should be beneficial to publishers, consumers, and advertisers, as well as to both of the companies, Callahan said, since relevant content, audience size, and number of ads will increase as a result of the agreement.

Callahan’s view was supported by Google Chief Legal Officer David Drummond and Tim Carter, the CEO of web site Askthebuilder.com.

Drummond said that notwithstanding Google’s agreement with Yahoo, Yahoo remains independent.

Privacy advocates and others concerned about the lack of online competition have grown anxious over the prospect of 90 percent of online searches being in the hands of one company. The more data that is available to an individual search engine, the easier it would be to construct facts about a web searcher’s identity, these critics say.

Google now accounts for about 70 percent of searches; Yahoo accounts for 20 percent; with Microsoft at 10 percent, according to witnesses at the hearing.

Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., said he was wary about the possibility of vast amounts of personal data being in the possession of one company. Furthermore, the prospect of increased advertising prices, decreased competition, and loss of jobs also must be taken into account under the Google-Yahoo agreement, Leahy said.

Matthew Crowley of Yellowpages.com also criticized the agreement, saying that it would increase advertising prices, decrease customer choice and discourage competition and innovation.

Pressed by Sen. Orrin Hatch, R-Utah, on whether the deal would give individuals incentive to bypass Yahoo and buy advertising directly from Google, Callahan said that companies should be aware that there is “no guarantee” that their ads will be on Yahoo as well as Google.

Smith also said that Microsoft’s failed attempts to purchase Yahoo would only put the combination at about 30 percent of all searches, or about three times smaller than the combined size (90 percent of the market) of a Google-Yahoo combination.

Drummond responded by declaring that Yahoo could proceed on one of two paths. On one path, Yahoo remains a player in the search engine market and generates more revenue as a result of its deal with Google. On the other path, Yahoo ends being “gobbled up by Microsoft.”

When asked whether Google would consider changing the language of their agreement if asked to do so, Drummond said yes. Callahan, of Yahoo, “echo[ed]” Drummond’s comments.

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3 Responses to “Microsoft Attorney: Jerry Yang Said Google-Yahoo Merger Would Kill Competition”

  1. Drew Clark Says:

    The Money-Rx blog has a blog post on the story. It quotes Yahoo attorney Michael Callahan as saying, “With this business arrangement, Yahoo! will continue to execute on its long term corporate strategy. Microsoft, on the other hand, has turned to activist shareholder Carl Icahn, in the apparent hope that this will force a fire sale of Yahoo!’s core strategic search business.”

  2. Drew Clark Says:

    Scott Cleland’s Precursor Blog highlights Wisconsin Democratic Sen. Herb Kohl’s comment, about Brad Smith’s testimony, as “pretty explosive stuff”

  3. Drew Clark Says:

    In advance of the hearing, the Google Public Policy Blog took a whack at previewing what Google Chief Legal Officer David Drummond would be saying, and updated the post with a YouTube video of Drummond’s testimony.

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