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GOOG-YHOO: We Changed Our Deal; Approve it, Please!

Keep on keepin' on

To fend off a complete rejection of its proposed search ad liaison, Yahoo and Google have submitted a revised operating proposal to the Department of Justice (DOJ).

Under the new terms of the agreement first announced in June, Yahoo shall run Google search ads on its own sites and the companies will split the revenue. For Google, this means additional ad space. For Yahoo, it means as much as $450 million in additional revenue, according to outset estimates. (That estimate was later changed to $800 million.)

The revision limits the revenue Yahoo could get from the deal, capping it at 25% of its own search revenue — setting the cap at $400 million. The agreement was also shortened to two years as opposed to the proposed 10. Google advertisers may also opt out of having their ads shown on Yahoo sites.

Critics, including the Association for National Advertisers, the Center for Digital Democracy, and 10 members of Congress, have voiced antitrust concerns about the arrangement. If the deal goes through, Google could control as much as 90% of the search ad market, they warned the DOJ last month.

Yahoo said it would continue to operate its own advertising system and compete with Google in search and other areas. The two companies set up fact sites to answer questions about the deal and address concerns from advertisers.

But even after three or four months of review by the DOJ, signs of approval — or even official refute — have failed to surface. Last week, reports suggested both sides may walk away from the deal as early as the end of this week if approval is not granted soon.

Still, both sides seem ready to make concessions. "Yahoo wants the deal, and they're willing to have Google sign anything at the Justice Department to have them do it," a source told Reuters last week. Indeed, Yahoo appeared willing to accept certain limits on the upside of the deal in order to ensure it proceeds, CNN reports.

The deal originally alighted as a defense against Microsoft's unsolicited bid in February. If it falls through, there will be added pressure on Yahoo to buy AOL from Time Warner, with which it has already been in talks.

Google would also prefer to accept a less lucrative return rather than drop the agreement entirely. But a legal fight with the government wouldn't be a wise move, according to the SF Chronicle, because Google would be perceived "by the Justice Department as a monopoly intent on stamping out competition."


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