AdWeek: Advertisers Against Yahoo-Google Deal

According to an article in AdWeek within the next month, the Department of Justice will decide whether to block the deal Google struck with Yahoo to serve ads on some of its search results pages.

The companies are set to implement the deal in early October.

The DOJ has asked a broad range of executives for input into what the deal will mean for the ad industry.

Microsoft, is urging agencies to come out against the agreement.

“We’re concerned about the Yahoo! deal,” said Rob Norman, CEO of WPP-owned GroupM North America. “For advertisers to prosper, they need competitive markets. We think Google is a fantastic company. Our sense is that if the transaction with Yahoo! proceeds, there’s the potential the development of the Yahoo ad system,  Panama and other competing systems will atrophy over time.”

Interviews with executives from shops large and small have mostly echoed these concerns. The respondents worry that the agreement will create higher prices, less competition and give Google a stranglehold on the search ad market.

The deal hinges on the scale economics of the search market. Yahoo plans to show Google search results for an undefined subset of queries. Yahoo’s head of North American ad sales David Karnstedt said those searches would mostly cover “tail” terms, or less frequently searched terms that Google handles better because of its larger marketplace. That means more clicks and conversions, he said. “If this gives more volume than converts, it’s a good thing for advertisers,” he said.

Yahoo says they expect to generate $800 million in revenue from the deal. This aspect troubles many ad agencies, is they believe all that extra money will come to Yahoo in the form of higher prices.

An analysis by search management system provider SearchIgnite concluded prices on Yahoo keywords funneled to Google would rise 22 percent.

What’s more, Google’s more robust marketplace it has more advertisers, handles more searches and gets more clicks, therefore Google will exceed Yahoo’s search ads in revenue generation in most instances, critics argue.

The advertiser will find itself spending more for the same amount of clicks because they’re coming from the most expensive part of the ecosystem,” said Kevin Lee, CEO of Did-it.com, a New York search-marketing firm. “It’s not rocket science.”

The greater worry beyond a short-term spike in prices is that the deal would accelerate the “virtuous cycle” Google enjoys. Its ad platform already far outperforms Microsoft’s and Yahoo’s.

With more advertisers and dollars in the system, the cycle would accelerate. Microsoft contends it would result in Google controlling up to 90 percent of the search ad market.

The situation has exposed industry fault lines. Executives from IPG, WPP, Omnicom and Aegis all expressed discomfort with Google-Yahoo deal.