Google calls off search advertising deal with Yahoo

Google announced Wednesday that it is ending its effort to forge a search advertising partnership with Yahoo.

After four months of wrangling with advertisers and government regulators who voiced competitive and antitrust concerns about the deal, the company said in a blog post that continuing the effort is not in the best interests of Google or its users. The proposed deal would have seen Yahoo running Google advertisements in its search results.

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"Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners," noted David Drummond, Google's senior vice president of corporate development and chief legal officer in the post. "We feel that the agreement would have been good for publishers, advertisers, and users -- as well, of course, for Yahoo and Google. We're of course disappointed that this deal won't be moving ahead. But we're not going to let the prospect of a lengthy legal battle distract us from our core mission."

Shortly after the deal was announced in June, Google and Yahoo came under fire from large advertiser groups, which charged that the deal would diminish competition and raise online advertising prices. At the same time the U.S. Department of Justice hired a high-profile litigator to look into whether the deal warranted an antitrust investigation.

And an antitrust think tank has said the partnership could end up as a "black hole that swallows up Yahoo," thus justifying an antitrust investigation.

In addition, the chairman of the U.S. Senate's antitrust subcommittee urged the DOJ to closely examine the proposed partnership, noting that it could lead to higher advertising prices and create unfair market conditions. Sen. Herb Kohl (D-Wis.) noted then that the subcommittee's investigation found that many advertisers and competitors are concerned about Google's potential to control a dominant share of the search advertising market. Under the deal, Yahoo would have less incentive to compete against Google and could opt to exit the market altogether, Kohl asserted.