Google Economist Defends Yahoo Deal via SearchIgnite Report

It's taken days of browbeating from media organizations and media-fueled hints that the Justice Department is going to contest its deal with Yahoo, but Google has finally come out blazing in defense of its search advertising practices.

Google's Chief Economist Hal Varian denounced a July report from SearchIgnite, which concluded that keyword prices on Yahoo would soar 22 percent once the company completed its search ad deal with Google.

Varian said many of the conclusions the paper draws are untrue and he sought to clarify terms of the deal against a backdrop of criticism and concern.

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There's no question a 22 percent keyword price hike would put quite the squeeze on advertisers bidding on ads on Yahoo, which agreed to run Google ads along its search results in the arrangement. The deal is pending approval by the DOJ, which has reportedly hired legal eagle Sonny Litvack to scrutinize Google.

The World Association of Newspapers appears to echo conclusions from the SearchIgnite report in a letter calling for the DOJ and European Union to block the deal. WAN President Gavin O'Reilly said the Googlehoo deal will force advertisers to migrate to Google since they will see diminishing price advantages to advertising.

Yahoo will then have fewer of its own ads to serve and therefore less ability to offer a better deal than Google, O'Reilly said. This would "fatally weaken Yahoo" as a competitor for content ads and syndicated search ads to online news sites.

The WAN letter is likely what caused Varian to pounce on the SearchIgnite report, which suggested that advertisers will be getting the same performance from the same ads, just at higher prices, or less bang for the buck.

"We believe that advertisers will be getting significantly better performance at prices that reflect that improved performance," Varian wrote in this Sept. 16 blog post.