Consumer group asks senator to intervene in Google-Yahoo deal

Update at 10:43 a.m. PDT: Additional information added relating to Google's FAQ Web site.

Google and Yahoo's controversial search advertising partnership deal took another hit Thursday, as consumer and public interest group Center for Digital Democracy fired off an opposition letter (PDF) to the chairman of the Senate antitrust committee.

The Center for Digital Democracy asked Sen. Herb Kohl (D-Wis.), to call on the Department of Justice to oppose the partnership between the two companies, or at a minimum establish "meaningful safeguards" to the arrangement.

The organization, which is known for taking positions on issues like privacy, asked Kohl to press antitrust regulators to address potential privacy issues arising out of the search advertising partnership, as well as concerns about the deal reducing competition in the market. According to the letter:

It is crucial that the U.S. do everything it can to promote competition in the key digital advertising market, especially given its emerging core role as the principal means supporting online editorial content. Unless action is taken--the deal opposed or, at the very least, meaningful conditions imposed, serious competitive harm will be inflicted on this vital sector of the U.S. economy.

The letter to Kohl also notes that the group had already issued its complaints to the Justice Department last July.

Federal antitrust regulators have recently narrowed their focus on the proposed transaction to whether it will lead to increased prices for advertisers in the short term and, in the longer term, lead to Yahoo exiting the online search advertising market altogether. Privacy is not a topic of interest for the antitrust regulators, much to the dismay of the Center for Digital Democracy.

Under the proposed deal, Google's paid ads would appear on Yahoo's search pages, an arrangement through which Yahoo expects to generate an additional $800 million in revenues within the first year. In terms of the competitive landscape, Google holds a substantial lead over its competitors Yahoo and Microsoft in the market for search advertising.

The Center for Digital Democracy also cited concerns that the transaction may undermine competition and could ultimately reduce payments to newspaper publishers, which receive revenue from the two companies' online search ads and related services.

Google, meanwhile, is not standing still as various organizations weigh in on its proposed transaction with Yahoo.

Google announced Thursday that it has launched a Web site about its deal with Yahoo to serve as a FAQ.

In its FAQ, Google addresses the pricing issue by noting:

Neither Google nor Yahoo! set ad prices. Ads are priced by an auction where an advertiser only bids what an ad is worth to them. And because of the wide variety of keywords and ads it is impossible for anyone to predict with certainty what might happen to prices for individual queries or even across the board. Furthermore, ad price is only one part of the story. A more important measure for advertisers large and small is the return on investment of their advertising dollar. The Google-Yahoo! agreement will help advertisers convert more clicks into customers by showing more relevant ads on Yahoo!, giving advertisers a better return for every dollar they invest.

And Google offered this perspective on whether Yahoo will eventually outsource an increasing volume of its ads to Google to the point where it would cease to be in that line of business:

Yahoo! has made clear that it will still use its own system to serve ads, and it will use extra revenue from this deal to improve its ad platform. The arrangement covers only the U.S. and Canada, and excludes the fast-growing mobile segment. Yahoo! also has an economic incentive to keep serving as many of its own ads as possible, since it gets to keep all of the revenue from those ads, while receiving only part of the revenue from ads served by Google.

Earlier this month, the Association of National Advertisers expressed similar concerns as the Digital Democracy, relating to potentially rising advertising prices and reduced competition in the marketplace over time.

But Yahoo, according to a letter (PDF) obtained by CNET News, had its U.S. executive vice president, Hilary Schneider, respond to the ANA concerns with this:

This is exactly the opposite of our business goals in pursuing this agreement. The essence of our strategy is to 1) enhance the search user experience by showing the most relevant ads, and 2) show ads that deliver the most value to advertisers and to Yahoo! For example, the agreement allows us to provide more valuable results to queries where we have no coverage or are under‐covered, and importantly to use the proceeds to develop products and services that scale and will strengthen our own marketplace.

In the coming days and weeks, it will become more clear whether the Department of Justice shares those views.