The Case Against Google-Yahoo

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"They are going to gain more revenue that they will use to compete with us."

Another argument against the deal is the effect on prices for advertisers. Google sells search ads in part by auctioning the terms that people use to search. So a company selling chain saws might bid on the term "chain saw" so that its ads turn up when a person enters the term into the Google search box. Google also sets minimum prices for those terms. But as part of the Yahoo deal, Yahoo will effectively turn over certain terms to Google.

Opponents say the minimums will result in price fixing, since advertisers who were able to pay lower minimum prices on Yahoo will be beat out by advertisers in Google's network whose bids are all higher. "Basically they are raising the minimum floor pricing for those keywords, so the simple argument [against the deal] is that it is price fixing," says a person familiar with Microsoft's thinking.

The price-fixing argument has not yet aroused the ire of advertisers, however. Interactive Advertising Bureau President and CEO Randall Rothenberg recently testified before a House of Representatives committee hearing that he did not think the government needed to step in. "The competitiveness of this industry and the dynamism of this industry is unquestionable," Rothenberg said. "We have a system that ain't broke at all so I would be very careful of going across that bridge from research and inspection to regulation."

Trump Card?

A third argument is that the deal is bad for publishers. Today, a publisher seeking to strike a deal for search-related ads on its site could negotiate with either Google, Yahoo, or Microsoft. One of the key bargaining chips is what percentage of the ad revenue Google gets to keep for selling and placing ads and how much goes to the publisher, which hosts the ad and provides the eyeballs that see it. Should Google ultimately gain control of a significant share of Yahoo's search business, publishers could find that they can't argue for as high a revenue split.

Several publishers who work with Google did not express concerns about losing negotiating power if the partnership with Yahoo goes through.

Should those three arguments fail, the deal's opponents have one more that could ultimately prove a trump card. They will argue that the deal was anticompetitive from the start because it was entered into to keep Microsoft from buying Yahoo and creating a stronger competitor to Google. "If a big part of the motivation behind the Google-Yahoo deal was to block entry of a competitor, that raises an antitrust issue," says Keith Hylton, a law professor at the Boston University School of Law and author of an antitrust law textbook.

To this claim, Google counters that the deal is profitable for both Yahoo and Google. "We are making money off the deal," says Wagner. However, he adds that Google is "certainly happy to support Yahoo in their bid to remain independent." Keeping Yahoo independent keeps Microsoft from making possibly anticompetitive moves, such as tying Yahoo's Web sites to the Microsoft computer operating systems, he notes.

But it's the Justice Dept. that may have the last word on just how far Google can go in keeping Yahoo out of Microsoft's orbit.

Holahan is a writer for BusinessWeek.com in New York.