November 5, 2008, 12:00 AM

Google aborts Yahoo deal that sparked fears of rising ad costs

When Google announced plans to place ads on Yahoo search pages it raised fears that Google’s even more dominant market position would lead to higher search ad prices. Those fears were laid to rest today when Google said it would not pursue the deal.

Google Inc. announced today it was dropping plans to provide some ads on Yahoo search results pages and publisher sites, laying to rest fears that the partnership would increase Google’s dominance in search marketing and lead to higher prices on pay-per-click ads.

Since announcing plans for the partnership in June, Google and Yahoo Inc. have been negotiating with the government about possible modifications that would address objections from advertisers. “However, after four months of review, including discussions of various possible changes to the agreement, it’s clear that government regulators and some advertisers continue to have concerns about the agreement,” Google chief legal officer David Drummond said in a statement today.

The government made clear in its own statement that it viewed the proposed deal as anticompetitive. “The arrangement likely would have denied consumers the benefits of competition-lower prices, better service and greater innovation,” Thomas O. Barnett, the assistant attorney general who heads up the antitrust division of the Department of Justice, said in the statement.

In its own statement, Yahoo expressed disappointment over Google’s decision, but says the deal was only an add-on to Yahoo’s own product road map “and does not change Yahoo’s commitment to innovation and growth in search.”

Google’s announcement is good news for search advertisers, says Mark Simon, vice president of industry relations at search marketing firm Didit LLC. “As Google’s reach in the search landscape has grown exponentially, it is important to the advertiser that there remains viable competition in this ecosystem,” Simon says. “Without having those options, we are all under the direct control of the lead horse.” He added his hope that Yahoo, the second-leading search engine, and No. 3 Microsoft Corp. “can help create this environment of choice for the marketer.”

Search marketing firm SearchIgnite released a report in July saying that pay-per-click ad prices could go up as much as 22% as a result of the planned Google-Yahoo partnership.

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