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April 9, 2008 1:28 PM

Microsoft lashes out at Google-Yahoo search partnership

Posted by Benjamin J. Romano

Microsoft General Counsel Brad Smith just issued a statement responding to a test project between Google and Yahoo to work together on search advertising, which was just announced by Yahoo.

"Any definitive agreement between Yahoo! and Google would consolidate over 90% of the search advertising market in Google's hands. This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo! We will assess closely all of our options. Our proposal remains the only alternative put forward that offers Yahoo! shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers."

Yahoo, in an announcement moments ago, said:

"[I]t will begin a limited test of Google Inc.'s AdSense for Search service, which will deliver relevant Google ads alongside Yahoo!'s own search results. The test will apply only to traffic from in the U.S. and will not include Yahoo!'s extended network of affiliate or premium publisher partners. The test is expected to last up to two weeks and will be limited to no more than 3% of Yahoo! search queries."

The news comes two days after Yahoo responded to Microsoft's ultimatum by saying it's open to a deal with Microsoft, but not at the price the company is proposing. Yahoo's board has maintained throughout the acquisition process that it is exploring all options available to the company.

Update, 1:55 p.m.: Yahoo said as part of the Google search advertising announcement, "the testing does not necessarily mean that Yahoo! will join the AdSense for Search program or that any further commercial relationship with Google will result. The Company further stated that it would not comment on the nature or timing of any potential relationship."

Microsoft is pointing to responses from regulators and antitrust experts quoted in a string of articles published in early February when Yahoo's board first rejected Microsoft's proposal. The rumors of a Yahoo-Google tie-up were flowing then and many people saw major regulatory hurdles for any such deal.

Update, 2:05 p.m.: Microsoft is pouring on the PR response to this announcement. The latest salvo is a statement from Wisconsin Democrat Sen. Herb Kohl, disseminated by Microsoft's outside PR firm for the deal, Joele Frank.

"We will be following closely the results of the short-term test alliance between Yahoo! and Google," Kohl, who is chairman of the Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy and Consumer Rights, said in the statement. "Should there be moves to make this agreement permanent, we will examine it closely in the Antitrust Subcommittee to ensure that it does not harm competition.

"Following closely on the heels of Google's acquisition of DoubleClick, this Google-Yahoo alliance would represent even further consolidation in the internet advertising market.

"We must ensure that this consolidation does not foreclose needed competition or harm consumers."

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