Google ramps up defense of Yahoo deal

Computerworld - Google Inc. has stepped up its defense of its proposed search advertising deal with Yahoo Inc. as criticism mounts that the agreement will give the search giant a monopolistic hold on online advertising.

Tim Armstrong, Google's president of advertising and commerce in North America, wrote two separate blog posts late last week defending the proposed deal, which would have Yahoo running advertising from Google alongside Yahoo search results.

In one, he sought to dispel the notion that the deal would lead to increased ad prices, noting that ads are priced by auction, where advertisers only bid what an ad is worth to them. In a second post, he argued that the deal will actually be good for competition because Yahoo will remain an independent company. He noted that had Microsoft succeeded in its attempt to buy Yahoo, the Internet pioneer would have lost its independence.

"Yahoo will continue to run its own search engine and advertising system," Armstrong added. "Yahoo will benefit from Google ads in areas where they have low ad inventory and maintain control over how much and what inventory they make available to Google. Yahoo will invest additional revenue in remaining a viable competitor in advertising."

However, the deal has come under fire from major advertiser groups, and it prompted the U.S. Department of Justice to hire a high-profile litigator to look into a possible antitrust investigation.

And the hullabaloo over the deal continues in the blogosphere this week.

Michael Arrington, a blogger at TechCrunch, noted yesterday that the deal would bring a disproportionate number of advertisers to the search giant's stable. The real long-term win for Google and Yahoo, he added, is their building of commercial relationships directly with advertisers.

"Google has far more of them, because they're chasing the massive search page views that Google supplies them," Arrington noted. "The more advertisers bidding, the higher the price. With the addition of Yahoo search queries, there will be even more inventory, and even more incentive for those advertisers to jump on the Google platform."

He went on to note that third-party sites like MySpace, Facebook, Digg and others that show Google's ads on their sites are at the "mercy" of Google when their agreements come up for renewal.

"Google may give Yahoo most of the revenue today from Google ads, but in 10 years, when Google is the only player in town, look for the terms to move towards a more standard monopolistic model," Arrington noted. "Today, Google is kept in check via competitive deals where Microsoft or Yahoo are willing to actually lose money to win away the partner from Google and get control of those search queries."