Google, Yahoo May Drop Search Deal

By Reuters  |  Posted 10-31-2008

Google and Yahoo could announce a decision to walk away from their search deal by the middle of next week, The Wall Street Journal reported on Thursday, citing people familiar with the matter.

The two Internet companies have so far failed to reach an agreement with the U.S. Department of Justice on implementing their search advertising partnership.

Earlier this month, the companies said they had decided to delay implementing the controversial deal, struck in June, due to ongoing discussions with regulators.

The deal, which allows Google to sell advertising for some of Yahoo's online advertising space, has drawn fierce criticism from advertisers, who fear higher prices.

Google and Yahoo together owned more than 80 percent of the web-search market in August, according to comScore.

A source said at the time that the delay was expected to last less than a month.

But following a Thursday meeting with the Justice Department, the companies could decide to back away or announce a last-minute resolution--if one is reached--by next week, the Journal reported.

Yahoo spokesman Tracy Schmaler said discussions between the two companies are ongoing and they are working with regulators.

"We believe strongly that this agreement will strengthen Yahoo's competitive position in online advertising and will help to drive a more robust, higher quality Yahoo marketplace for our advertisers, publishers and users," Schmaler said in an e-mailed statement.

Google spokesman Adam Kovacevich said they continue to have "cooperative discussions" with the Justice Department.

"We are confident that the arrangement is beneficial to competition, but we are not going to discuss the details of the process," Kovacevich said in a statement.

Yahoo struck the search deal with Google as a way to fend off Microsoft's unsolicited bid.

By collecting the revenue from placing Google ads alongside its search results, Yahoo's cash flow could grow by $250 million to $450 million in the first year of the deal, the companies had said in June.

The deal has since been mired in the regulatory process. In September, the Justice Department hired Sandy Litvack, its former antitrust chief and Walt Disney's former vice chairman, to consult on its probe of the search deal.

Separately, Yahoo is in advanced discussions with Time Warner about buying the content and advertising operations of its AOL unit, sources said.

Yahoo and AOL are presently conducting due diligence to see what a combined company would look like, one source said.

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