• silicon.com
• Management
• CIO Insights

By Dawn Kawamoto, 4 November 2008 08:28

NEWS

Yahoo! and Google have reportedly revised their search advertising agreement, according to a report in The Wall Street Journal.

According to the report, the companies sent a revised proposal to the Department of Justice over the weekend that calls for such significant changes as limiting the 10-year agreement to two years and, more importantly, placing a cap of 25 per cent on the amount of revenue Yahoo! can generate from Google under the deal.

The controversial search advertising deal calls for Yahoo! to place Google's ads on its own relevant search pages. Under the initial deal, Yahoo! had hoped to receive $800m within the first year of the agreement.

But whether such a proposal would fly with Department of Justice officials has yet to be seen, given antitrust regulators have wanted a cap closer to the 20 per cent range, one source familiar with the discussions told silicon.com sister site CNET News.

Regulators have been concerned that a Yahoo!-Google agreement would lead to higher advertising prices and Yahoo! exiting the search advertising business altogether if it found the Google deal lucrative enough.

Hence, regulators believe the cap on the percentage of Google ads that could appear on Yahoo! search pages would serve as a means to keep the internet search pioneer in the game.

The companies had been balking at such low caps, noting it would offer little economic benefit to their arrangement, sources familiar with the deal previously told CNET News.

It remains to be seen whether such a revised deal would go through and whether Yahoo!'s cut of the action would be reduced to $200m, rather than $800m.

Representatives for both companies declined to comment on their discussions with regulators, other than to note that the process is continuing.

A Google spokesman said in a statement: "We are continuing to have co-operative discussions with the Department of Justice about this arrangement and agreed to a brief delay in implementing the agreement while those discussions continue. We are confident that the arrangement is beneficial to competition but we are not going to discuss the details of the process."

Should an agreement be reached, the Department of Justice would likely file a consent decree with the courts, which would carry the same force as a court order. Typically, consent decrees last 10 years, or as little as five years, so a two-year consent decree would be short, a source told CNET News.

And in these types of arrangements, the Department of Justice would likely insist a monitor would put in place to ensure the structure of the consent decree was upheld, with the monitor reporting to the Department of Justice but whose salary would be paid by the companies, the source added.