Google Refutes Microsoft Rant Against Yahoo Japan Deal

Microsoft lead lawyer Brad Smith called Google's deal to power search and search ads for Yahoo Japan anti-competitive and compared it to Google's failed bid for a similar deal with Yahoo in the U.S. Google respectfully disagreed and chalked it up to fair business practices.

Microsoft's lead attorney railed against Google's deal to power search for Yahoo Japan, and Google was only to happy to respectfully disagree in a war of words.

Yahoo Japan, a Softbank subsidiary of which Yahoo has a 35 percent stake, July 27 selected Google as its provider for search and search ad technology.

The arrangement, which replaces Yahoo, is expected to come to fruition by the end of the year. More than that, it was a slap in the face for Microsoft's Bing, which is powering search for Yahoo in 59 other countries. Yahoo Japan said it preferred Google's technology over Bing.

It certainly didn't sit well with Microsoft, which opposed Google's June 2008 bid to power search and search ads for Yahoo in the United States.

Brad Smith, Microsoft senior vice president and general counsel, compared Google's Yahoo Japan pact to Google's bid to partner with Yahoo in 2008, a deal that the Department of Justice struck down in November of that year for being anti-competitive.

"This agreement is even more anticompetitive than Google's deal with Yahoo in the United States and Canada that the Department of Justice found to be illegal," Smith said in a statement e-mailed to eWEEK.

"The 2008 deal would have locked up 90 percent of paid search advertising. This deal gives Google virtually 100 percent of all searches in Japan, both paid and unpaid. It means there will be no search competition in Japan and that Google will end up controlling all personal search information for all Japanese consumers and businesses."

Google spokesman Andrew Pederson disagreed, pointing out key differences in the deals.

First, Pederson told eWEEK, Google will only be licensing its advertising platform services to Yahoo Japan and will not be providing ads for Yahoo Japan, which will manage its own advertising system and advertiser relationships. Google and Yahoo Japan's advertisers and advertising data will remain entirely separate.

Second, Pederson said Yahoo Japan will continue to compete as an independent online search and advertising company. The company can customize Google's search service for their users. In other words, Google isn't coopting Yahoo Japan with its own look and feel.

He added that arrangements like these are commonplace without hindering competition. For example, Toyota sells its hybrid technology to Ford, even though they compete against one another in selling cars.

For another, Canon provides laser printer engines to HP, despite competing in the broader laser printer market.

Finally, Google said it and Yahoo Japan have seeded the idea with the Japan Fair Trade Commission, which said it had no objection to the proposed transaction.

"We believe this is the correct outcome for a number of reasons, including the fact that the license will be non-exclusive, and both parties will be free to explore better products and services and work with third parties as they see fit," Pederson said.

"Competition between Google and YJC, as well as others in the online advertising market, will remain vigorous because their advertising operations will stay independent of one another, and there is competition with other online advertising service providers."

Financial analysts see the deal as a veritable slam dunk for the search giant, whose 65 percent U.S. market share could be dwarfed by the share Google garners in Japan thanks to the agreement.

"For Google, this is a big strategic win in the rapidly growing Asian market, where it has faced investor concern due to its weakening position in China," wrote Susquehanna Research analyst Marianne Wolk in a research note July 27. "Furthermore, it gives it a big leg up in mobile advertising as smartphone and mobile data usage is high in the region."

Wolk believes the Yahoo Japan deal would add 1 percent to Google's net revenue.

She also acknowledged that this is a "major strategic blow to Microsoft," which she said may seek to block the deal.