Google Defends Yahoo Ad Deal Amid Criticism

Google has stepped up its defense of its proposed advertising deal with competitor Yahoo amid calls for the U.S. Department of Justice to investigate the agreement.

Earlier this week, the Association of National Advertisers and the World Association of Newspapers (WAN) called on the DOJ to look into the deal and its impact on Web advertising. The Paris-based WAN, representing 18,000 newspapers worldwide, also asked the European Commission's Competition Directorate and the Competition Bureau of Canada to investigate the deal.

"WAN believes that the competition that currently exists between Google and Yahoo is absolutely essential to ensuring that our member titles receive competitive returns for online advertising on their sites, and for obtaining competitive prices when they purchase paid search advertising," Gavin O'Reilly, WAN's president, wrote to the three agencies. "In our view, the proposed advertising deal between Google and Yahoo would seriously weaken that competition, resulting in less revenues and higher prices for our members."

Earlier this month, news reports said the DOJ has hired a prominent antitrust lawyer to look into the deal.

Google countered criticisms of the deal with three blog posts this week. Tim Armstrong, Google's president of advertising and commerce in North America, denied that the deal will drive up the cost of online advertising.

"Neither Google nor Yahoo set ad prices," Armstrong wrote in a Thursday blog post. "Ads are priced by an auction where an advertiser only bids what an ad is worth to them."

The deal will also help advertisers buy more relevant ads on Yahoo, Armstrong added. "The Google-Yahoo agreement will help advertisers convert more clicks into customers by showing more relevant ads on Yahoo, giving advertisers a better return for every dollar they invest," he wrote.

Yahoo has projected it will make up to US$800 million a year through the deal, and critics have questioned where that money will come from, if not from increased ad prices. Instead of raising prices, the deal will allow Yahoo to expand its ad market, Armstrong said.

"There are two main reasons Yahoo! is likely to earn more revenue," he wrote. "One, the deal will allow Yahoo! to show more ads on pages where they previously showed no ads or only a few ads. Two, advertisers will get more clicks on ads because the quality and relevance of those ads will be better."

In a Friday blog post, Armstrong also addressed questions about whether Yahoo would cease to exist as an independent ad platform and why advertisers would continue to advertise with Yahoo after the deal.

Yahoo plans to continue to serve its own ads, he said, and Yahoo plans to use Google ads primarily on Web pages where few or no ads now appear. "The only way for an advertiser to guarantee placement for their ads on Yahoo is to advertise through the Yahoo platform itself," he wrote.

The Google explanations didn't sway some critics.

Google has attempted "to weave and spin this critical issue," said Jeffrey Chester, a frequent Google critic and executive director of the Center for Digital Democracy, a privacy and open Web advocacy group.

The issue isn't as simple as Armstrong's posts suggest, and Yahoo's decision to turn over a core part of its search functionality could leave the company "fatally wounded," he said. The deal also raises privacy concerns, Chester added.

"Yahoo's future, in my opinion, as a full-service online ad company is endangered, as more businesses realize that its search ad business relies increasingly on Google," he added. "Google should have been able to acknowledge that a major deal with its leading search competitor raises serious questions worthy of broad debate and critical analysis."

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