The deal, as proposed, would have likely caused anticompetitive harm in the Internet search advertising and search syndication markets, the DOJ said in a news release. "Yahoo is by far Google's most significant competitor in both markets, with combined market shares of 90 percent and 95 percent in the search advertising and search syndication markets, respectively," the DOJ said. "Yahoo provides an alternative to Google for many advertisers and syndication partners, and Yahoo! recently had begun making significant investments in order to compete more effectively against Google."
One observer of the DOJ's focus on the deal said he was amazed that the DOJ was "so focused on these companies doing a non-merger" when it has let multiple mergers happen in many other industries. The observer, speaking on background, said it appeared that the DOJ was rewarding Microsoft and punishing Google for its lack of support for President George Bush's administration.
The proposed ad deal was an attempt by Google to prevent Microsoft from buying Yahoo. Microsoft made several offers for Yahoo earlier this year. "Some of the goals of the deal may have been accomplished by frustrating Microsoft," the observer said.
Google and Yahoo denied that the deal would harm competition. Yahoo could chose to run Google ads, but would not be required to, the companies said. Yahoo's search results would continue to be independent of Google's, and ad prices would continue to be set through online auctions, the companies said.
The deal would have been good for publishers, advertisers and Internet users, Drummond said. "Why? Because it would have allowed Yahoo! (and its existing publisher partners) to show more relevant ads for queries that currently generate few or no advertisements," he wrote. "Better ads are more useful for users, more efficient for advertisers, and more valuable for publishers."
Yahoo will move forward with its business plans, the company said. "This deal was incremental to Yahoo's product roadmap and does not change Yahoo's commitment to innovation and growth in search," the statement said. "The fundamental building blocks of a stronger Yahoo! in both sponsored and algorithmic search were put in place independent of the agreement."
Jeffrey Chester, executive director of the Center for Digital Democracy, a group focused on rights for Internet users, said he was happy to see the deal collapse.
"We are pleased that Google finally understood that the proposed alliance with its leading competitor threatened competition. Much is at stake over the competitive landscape for online advertising," he said in an e-mail. "For too long, policymakers and regulators have failed to address the growing consolidation of control in the online advertising market. Today's announcement in its own way underscores what we have been telling officials: that a very tiny handful of global digital giants -- particularly Google -- is increasingly dominating the most prevalent way online publishing is financially supported."