MICROSOFT EXEC CRITICISES GOOGLE-YAHOO DEAL

Senior Microsoft executive Kevin Johnson has criticised Yahoo's search deal with Google as anti-competitive and bad for advertisers, at a debate featuring representatives of leading internet companies at the Cannes International Advertising Festival.

Microsoft's Johnson cut in: "If 'win' is consolidating 90% of the paid search market [in the US] to Google then that's a win".

He said that from an industry perspective advertisers were not likely to be well served by "the search industry consolidating around a small number of platforms". Johnson added that Microsoft's Yahoo takeover bid in February offered a "significant premium" in an offer that was designed to be "fast and friendly" to move quickly in the fast-moving internet world.

I've had a great opportunity to get to know Jerry and the Yahoo board, they made a business decision and there are implications in that," he added, responding to a question from Sorrell about dissident investor Carl Icahn's move to oust the Yahoo board.

Johnson, the author of an internal letter made public earlier this week that revealed Yahoo had turned down a $9bn search advertising deal with Microsoft added that against an "entrenched competitor" like Google the company had to "innovate and disrupt".

This was the thinking behind the launch of the "cash back" offer to advertisers when consumers buy a product after using Microsoft's search service.

"The concept of search is to link buyers and sellers so why does the middleman keep all the money," he said in a thinly veiled pop at rivals. "We have to breakthrough in search, we are not where we need to be at."

MICROSOFT'S WAR AGAINST GOOGLE

Microsoft is pushing hard to stop Google from teaming up with Yahoo now that the software giant has given up on acquiring the tarnished Internet portal. But antitrust lawyers and technology analysts outside the case don't think Ballmer & Co. has much of a prayer at stopping the deal from going through.

Microsoft intends to put up a strong fight nonetheless. The company is on a mission to derail or delay Google's deal to outsource a portion of its ads on Yahoo. The company says it's still interested in buying just Yahoo's search business. Microsoft has deployed its lawyers and Washington staff to meet with lawmakers to discuss how Google will monopolize search advertising and drive up prices through its new Yahoo partnership.

Microsoft offered to acquire Yahoo in February for $44.6 billion. When Yahoo held out for more than the software giant was willing to pay, Microsoft withdrew an increased bid of $47.5 billion in early May and proposed buying Yahoo's search business for $9 billion a month later. 


Instead, Yahoo cut a deal with Google in mid-June to run some of Google's search ads on its Web properties, and says it expects to generate an additional $250 million to $450 million in cash flow. Yahoo says it plans to use the extra money to invest in its own search engine. Google, meanwhile, hopes to keep Yahoo out of the arms of Microsoft, its main adversary. Microsoft CEO Steve Ballmer has stated that the company does not want to inherit the regulatory problems and potential lawsuits that would come with buying a Google-supported Yahoo.

With or without Yahoo, Microsoft is continuing efforts to chip away at Google's dominance. The company last month introduced a "cashback" program to pay users money whenever they buy products like the Wii or digital cameras on Microsoft's Live Search engine.

YAHOO'S VIEW ON DEAL WITH GOOGLE ADSENSE

     Yahoo President Susan Decker wrote, "This agreement provides a source of funds to both deliver financial value to stockholders from search monetization and to invest in our broader strategy to transform display advertising and advance our starting point objectives with users. It enhances competition by promoting our ability to compete in the marketplace where we are especially well positioned: in the convergence of search and display".

     Yahoo's statement spelled out the terms of the deal: It will run for four years initially, with the option of extending it to ten years in two- or three-year renewal intervals. It only affects Yahoo Web properties in the US and Canada.

     "Advertisers will continue to pay Yahoo directly for clicks served by Yahoo from Yahoo's Panama and Content Match marketplaces," today's Yahoo statement reads. "Advertisers will pay Google directly for each click on Google paid search results appearing on Yahoo owned and operated network or certain affiliate sites. Google will share a percentage of such revenue with Yahoo".

GOOGLE'S VIEW ABOUT YAHOO DEAL

     Google Senior VP Omid Kordestani said, "We are proud of the advertising technologies we have built, which show users a relevant ad whether they are searching for a specific item or browsing the internet. This arrangement extends those benefits to Yahoo and its many users, advertisers and publisher partners. We currently provide similar services to sites like AOL and  Ask.com as well as many other partners, and we work closely with all of our partners to ensure that our partnership drives their long term success."

     Kordestani went on to make certain points very clear. In boldface type, he wrote, "This is not a merger." The deal is limited to enabling Google ads to appear on  Yahoo search and Yahoo-hosted sites, as well as an agreement between both companies to make their instant messaging services interoperable.

     Also with a boldface heading, he added, "This does not remove a competitor from the playing field. Yahoo will remain in the business of search and content advertising, which gives the company a continued incentive to keep improving and innovating. Even during this agreement, Yahoo can use our technology as much or as little as it chooses." He went on to say Google's share of search traffic will not increase under this deal -- a key concern of regulators -- since it's still Yahoo's engine that's providing the search for Yahoo's pages

ADSENSE ON YAHOO SEARCH

     Last week news came from google that it will indeed become a fulltime provider of adsense advertising for YAHOO search pages, and the two IM protocols will become introperable. 

     Under the deal, as Google's announcement describes it, Yahoo will become a carrier of AdSense-driven contextual ads not only within its own search pages, but also optionally for other services that it hosts. But Yahoo will continue to provide the search functionality -- it is not sublicensing Google's search to substitute for its own, or making any kind of a deal that passes control of Yahoo Search over to Google.