It seems as though all the attention from regulators is making Google a bit nervous about it’s deal with Yahoo; they just launched a new webpage that provides more details about “why it is good for consumers, advertisers and publishers”. Is everything as good as they say it is? Let’s look at the three main points they want to emphasize:

  • This is a non-exclusive deal that will strengthen Yahoo!.
  • Ad prices will continue to be set by competitive auction.
  • The deal is win-win for consumers, advertisers and publishers: more and better ads.

Before I go into the details, have a look at this page from their site. It has quotes from various people in the search and ads industry; at first it looks pretty solid, but if you look closer you’ll see what is missing. There is not a single negative quote. If people are all so positive about this deal, why are they launching this page? For me, this single page on their site says it all: Google is not telling the whole truth about the deal.

So with that in mind, let’s have a closer look at what they are saying!

Non-exclusive deal

The first thing Google has to say is:

This is a non-exclusive deal that will strengthen Yahoo!

OK, if it will strengthen one of their main competitors, why make this deal? That’s quite simple to answer, they are afraid of the next in line, Microsoft. Google is keeping a competitor that has been losing marketshare afloat to prevent it from being picked up by Microsoft; such a deal would give Microsoft about half the share of the search market Google currently has, more than tripling Microsoft’s share. Microsoft is even rumored to be interested in both Yahoo and AOL together!

Market share for Google was 63% in August, with Yahoo following with 20% and Microsoft a distant third with a bit over 8%. So a Microsoft-Yahoo deal would mean that advertisers get a real alternative that has about 30% market share, or about half the size of Google. By showing Google’s ads on Yahoo’s web properties, Google and Yahoo get a combined market share in the market for online ads of about 83%; which leaves their closest competitor with about 1/10th of GooHoo’s market share. And it doesn’t exactly look like Microsoft is gaining any ground in this market either:

Google tries to combat this argument by saying that it is a “non-exclusive” deal that allows Yahoo to run other ads as well. But you can bet that Google is paying them more than they do with other partners to give them a nice incentive to stop developing their own ads engine. And we don’t get all the facts about the deal either; this is what Google lists as “terms of the deal”. A 5-paragraph page that has absolutly zero details. The least they could have done was point at the SEC filing that has a lot more details.

Ad prices will continue to be set by competitive auction

This second statement suggests that there is a real marketplace that decides prices for online ads. That is just a (widespread) misunderstanding; there is an auction-type system, but one in which Google sets the minimum bid price. There is nobody else governing this price, and Google has already started raising the minimum bids since the Yahoo deal was signed. This is causing some people huge problems.

A large group of online advertisers is protesting against the deal for just this reason:

[…] “a Google-Yahoo partnership will control 90% of search advertising inventory” and expressed “concerns that the partnership will likely diminish competition, increase concentration of market power, limit choices currently available and potentially raise prices to advertisers for high quality, affordable search advertising.”

Again, there is not a single mention of this objection on Google’s site. They do say this:

This deal does not let Google raise prices for advertisers. Google does not set the prices manually for ads; rather, advertisers themselves determine prices through an ongoing competitive auction.

It looks like they forgot to mention the minimum bid. Their Adwords site has more info:

Each keyword has a minimum bid that is based on the quality (also called Quality Score) of your keyword specific to your account. If your keyword or Ad Group’s maximum cost-per-click (CPC) meets the minimum bid, your keyword will be active and trigger ads. If it doesn’t, your keyword will be inactive for search and not trigger ads on Google or its partner search sites.

Win-win for consumers, advertisers and publishers: more and better ads

This third point Google mentions is wrong on so many levels I don’t even know where to begin…

If “more ads” is a good thing, why doesn’t Google’s own homepage show even a single ad? If we’d all like ads so much, they should make it look more like the million dollar homepage!

And of course Google doesn’t decide the quality of an ad. Google simple shows the ads from the person that pays the most; according to their own statements the position of ads is based on an auction process. The only thing they do is match the ads with the content of the webpage they are shown on. This is something that they do very well, but it’s not like Yahoo or Microsoft are so bad at this that it annoys consumers.

The only party that might be interested is are publishers; because Google can now raise prices for their ads the revenue publishers get for showing these will be going up as well. But who decides how much publishers get paid? Just guess

So is this deal good or bad?

Ultimately I’m not the person to decide this. But one thing is clear: Google is benefiting from a good image. Most people see the Yahoo deal as a simple black-and-white thing: either Google of Microsoft win, and Google is generally seen as the most sympathetic of these two companies. I feel the same way, but a little competition never hurt anyone, and nobody can deny that this deal is very bad for the competition in the online ad-market.