Google, Yahoo Prepare To Abandon Paid Search Deal?

Despite public pronouncements of confidence by Google and Yahoo about the future of their paid search deal, which was partly set up to fend off Microsoft and hostile Yahoo shareholders who wanted a Microsoft takeover, the emerging consensus is that it’s not going to happen. The Wall Street Journal this morning reports that the parties are not coming to terms and the US Justice Department wants concessions that the search engines don’t like. According to the WSJ:

The two companies met Thursday with the Justice Department, part of a series of meetings to address the concerns of regulators. While the parties may agree to continue the talks — or they could reach a resolution — there are signs they are unwilling to make compromises to address the Justice Department’s objections . . .

The option to scrap the deal has been on the table before, but Google in particular has begun considering it more seriously as Justice Department talks haven’t progressed. One sticking point has been the department’s discussion of having the companies sign a consent decree stating the terms of the partnership. That would subject their compliance to continuing oversight by a judge.

Google and Yahoo originally took the position — Google in particular — that the deal wasn’t even subject to government approval because it didn’t constitute a merger or an acquisition. The companies said they were voluntarily cooperating with the Justice Department rather than being compelled to do so. Google made the case that this agreement was like its arrangements with AOL or Ask, in which Google ads are provided via those companies’ search results.

Yet, in September, on the heels of some very public objections from various advertisers and publisher trade groups, the government hired former Disney vice chairman Sanford Litvack to prepare a potential antitrust case against Google. Publicity surrounding that development arguably caused Google stock to take a significant hit.

Lobbying by Google and Yahoo then intensified in favor of their deal. Google and Yahoo went online (Google, Yahoo) to explain “the facts” and promote the deal to interested parties and regulators. Meanwhile Microsoft publicly and privately had been doing the same thing to try and kill the deal.

Google and Yahoo have agreed to a couple of delays to allow the government to complete its anti-trust review. It appears those delays have been part of an effort by Google and Yahoo to negotiate with and satisfy regulators’ issues and objections to the deal.

If in fact the parties did “walk away” both Google and Yahoo are likely to see some investor fallout, perhaps Yahoo more than Google. But it would also signal that Google has bumped up against some limits that it hasn’t encountered before: it’s own success in search and the US government.

There’s more discussion at Techmeme.