Microsoft, Yahoo Deal Will Boost Competition vs. Google, DOJ Says

The Justice Department's Antitrust Division Feb. 18 cleared the search engine agreement between Microsoft and Yahoo because the deal is likely to increase competition with Google. Echoing what Microsoft CEO Steve Ballmer has said several times about the Microhoo deal, the DOJ said the transaction will improve Microsoft's ability to compete versus Google because it will give its Bing search engine more scale. Google commands 65 percent of search market share in the United States and a reported 90 percent share in Europe, making it easier for the DOJ and European Commission to OK the deal.

The Justice Department's Antitrust Division said it cleared the search agreement between Microsoft and Yahoo because the deal is likely to increase competition with Google, which has racked up the lion's share of search over the last decade.

Google commands 65 percent of search market share in the U.S. and a reported 90 percent share in Europe, making it easier for the DOJ and European Commission to OK the deal Feb. 18.

Microsoft and Yahoo last July 29 inked a 10-year deal in which Microsoft's Bing search engine would power Yahoo's search on the back end, with Yahoo retaining the look and feel of its search experience for consumers around the Bing search results.

Yahoo would also leverage Microsoft's search ad platform, reaping 88 percent of traffic acquisition costs, or monies paid from search advertising partners, generated on its sites during the first five years of the agreement.

In weighing whether to approve the deal, the DOJ said it culled extensive information from Microsoft, Yahoo and other market participants about the deal, noting:

"U.S. market participants express support for the transaction and believe that combining the parties' technology would be likely to increase competition by creating a more viable competitive alternative to Google, the firm that now dominates these markets. Most customers view Google as posing the most significant competitive constraint on both Microsoft and Yahoo, and the competitive focus of both Microsoft and Yahoo is predominately on Google and not on each other."

Ironically, the agency also relied on the market knowledge it gleaned when it investigated Google and Yahoo's failed search advertising agreement in 2008, when Google agreed to fuel Yahoo's search engine with its AdSense ads. Google made that overture in response to Microsoft' February 2008 bid to buy Yahoo for $44.6 billion.

Echoing what Microsoft CEO Steve Ballmer has said several times about the Microhoo deal, the DOJ said the transaction will improve Microsoft's ability to compete versus Google because it will give it more scale.

Specifically, Microsoft will have a larger pool of queries from which to draw, "which should accelerate the automated learning of Microsoft's search and paid search algorithms and enhance Microsoft's ability to serve more relevant search results and paid search listings."

This data pool will also help Microsoft make changes in the presentation of search results and paid search listings, other changes in the user interface, and changes in the search or paid search algorithms.

Ultimately, this "enhanced performance, if realized, should exert correspondingly greater competitive pressure in the marketplace." In short, it will help Microsoft gun for Google.

Bing's market share has grown from 8 percent to 11.3 percent since June 2009, but by the DOJ's reckoning, Bing's growth could be greater now that it has another search portal to serve in Yahoo.

While the DOJ is comfortable with its decisions to bless the Microhoo deal, the department vowed it will "continue to be vigilant in our enforcement of the antitrust laws in the search and paid search advertising industry."