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Google pulls out of proposed Yahoo agreement

Google has pulled out of its proposed advertising services agreement with Yahoo, which would have enabled Yahoo to use Google-provided ads on its Web sites and partner sites.

The two companies first announced the deal in June but opted to give regulators time to review it before implementation. Faced with threats of an antitrust lawsuit from the US Department of Justice, Google opted not to go ahead with the partnership.

“Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners,” David Drummond, Google’s SVP, corporate development, and chief legal officer, wrote on the company’s blog. “That wouldn’t have been in the long-term interests of Google or our users, so we have decided to end the agreement.”

Yahoo, which had rejected a takeover bid from Microsoft earlier this year, had proposed revisions to the deal in an effort to allay DOJ concerns, but to no avail.

“We continue to believe in the benefit of the agreement, and we were disappointed Google elected to withdraw,” said Adam Grossberg, a Yahoo spokesperson. “But we have a strong search roadmap and good cash position and intend to invest in top priorities going forward. It’s also important to point out that the search industry continues to grow, and, despite the current economy, we’ve benefitted from strong revenue per search gains.”

Both Yahoo and Google said the companies would continue investing in search functionality on their own. Google is currently the largest provider of search advertising and Internet search syndication services, with shares of more than 70% in both markets, and the DOJ’s report named Yahoo the company’s most significant competitor in both markets.

“The Department concluded that Google and Yahoo would have become collaborators rather than competitors for a significant portion of their search advertising businesses, materially reducing important competitive rivalry between the two companies,” the DOJ explained in a press release.

Some smaller online marketers may be breathing a sigh of relief about the deal’s demise.

“When you have consolidation, the advertisers — the people negotiating with these companies — are getting fewer options,” Scott Nelson, EVP and COO of next generation online advertising technology provider, TruEffect, noted. “The Google and Yahoo deal was disconcerting to the buy side because the media needs competition. Smaller companies that can address the needs of the buy side will now be able to develop a significant position.”

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