Review into Microsoft search deal deepens

The US Justice Department has asked Microsoft and Yahoo for more information about their proposed partnership in search results and related advertising, showing that antitrust officials are giving full scrutiny to the deal.

While the two companies have portrayed the arrangement as a way to build a more solid competitor to Google, they had anticipated a deep antitrust inquiry and had not predicted that the deal would close before next year.

Yahoo said nothing in the new request had pushed their closing date out past “early next year”, the timeframe it gave when the tie-up was announced in late July. Yahoo and Microsoft would not divulge the Justice Department’s chief areas of concern, but officials had been seeking more information on the expected impact on ad pricing. The Justice Department declined to comment.

“This is something that our executives had said all along, they expressed the view that we would receive an extended review of this deal,” said Yahoo spokesman Nina Blackwell.

Outside antitrust experts also had expected additional questions from regulators in Washington, who have taken a more aggressive stance on antitrust issues under President Barack Obama.

Washington has very rarely stopped the second- and third-ranking participants in an industry from combining against a strong market leader.

But the Federal Trade Commission did block Heinz from buying Beech-Nut, even though the union would have had far less clout than Gerber, which accounted for two-thirds of the market.

The European Union is less concerned over this deal because a Microsoft-Yahoo combination would have a smaller share of the market for search results in Europe, at around 10 per cent. Brazil, Taiwan and South Korea must also assess the deal’s impact.

Many advertisers and ad buyers, including top agency WPP, have been supportive of the arrangement. That is because Google has about three-quarters of the US market for advertisements that appear next to the computer-generated results for searches on words or phrases.

Under the unorthodox deal, Microsoft will supply both the main results and bidding-driven advertising results for people searching at Yahoo, which has been the number two search engine. Yahoo will keep a share in the profit from those ad sales, and it will continue to sell higher-cost ads to larger accounts, turning into more of a pure media firm.