Congress Steps Up Questions On Google, Yahoo Ad Alliance

Google's proposed search advertising partnership with Yahoo,already the subject of much scrutiny, faced additional examinationon Capitol Hill yesterday during separate House and Senate hearingson Internet competition.

Lawmakers questioned executives from Google, Yahoo and Microsoft -- the biggest players in online marketing -- about how dealsbetween the companies would impact consumers and advertisers. Thehearings were prompted by an announcement last month that Googlewould provide some search advertising for Yahoo.

"Doesn't this give advertisers incentive to bypass Yahoo entirelyand go directly to Google?" said Sen. Orrin G. Hatch, (R-Utah),ranking member of the Senate Judiciary subcommittee on antitrust,competition policy and consumer rights. "Why bother bidding onYahoo's site when I can go to Google and get two for one?"

Sen. Herb Kohl (D-Wis.), chairman of the committee, asked whetherthe agreement would reduce Yahoo to a "satellite in the Googleorbit."

Google is the top Internet company and, its critics say, couldcontrol Internet advertising if its deal with Yahoo is permitted.

The Justice Department is investigating whether a partnershipbetween Google and Yahoo could lead to a monopoly. Several statesalso have opened antitrust reviews of the deal.

Search advertising, referring to the ads that run beside thesearch results provided by Google, Yahoo and Microsoft, make up oneof the largest chunks of Internet advertising. Google is the No. 1search engine, with Yahoo and Microsoft running a distant second andthird.

Under the deal, Google would provide search advertising to runwith some Yahoo searches in the United States and Canada. Yahoo isestimated to get as much as $800 million annually from the deal.

Microsoft argues that allowing the two biggest players in searchadvertising to combine efforts would give Google control of 90percent of the market and allow it to raise prices and haveunprecedented access to information about consumers' online habits.

"If Google makes more money, then Yahoo makes more money," saidBrad Smith, Microsoft's general counsel. "That is not the way themarket is supposed to work."

Smith also said Yahoo chief executive Jerry Yang had warnedMicrosoft in a meeting last month that a partnership between Googleand Yahoo would push Microsoft out of the search-advertising market.

Michael J. Callahan, Yahoo general counsel, said he did notrecall that comment by Yang.

Google and Yahoo defended the partnership as a way to delivermore relevant ads to consumers and more valuable leads toadvertisers.

Callahan said the firm plans to use the revenue from the deal tobe a more formidable competitor for Google.

"Our incentive is to sell as many Yahoo ads as possible," hesaid.

Google general counsel David Drummond disagreed that the dealwould result in Google's control of the search ad market becauseYahoo would still sell its own ads.

"Yahoo is staying in the market and is a competitor goingforward," Drummond said. "If Microsoft swallows up Yahoo, onecompetitor will be gone."

Tim Carter, founder of AsktheBuilder.com, which provides homeimprovement advice, told lawmakers that a Google/Yahoo partnershipwould let Yahoo grow its search advertising business and allow smallfirms like his to reach more people. (Carter writes a columnsyndicated by Tribune Media Services that runs in The Post.)

"You can buy ads for very little money on all three of thesesearch engines," he said.

Matthew Crowley, chief marketing officer of YellowPages.com,which is owned by AT&T, said the deal would weaken Yahoo andultimately his business. As he put it: "We'll end up paying higherrates for less inventory on Yahoo."