Google-Yahoo search deal cut in half to appease regulators

November 4, 2008

y_logo Google and Yahoo are proposing a list of concessions in order to help the companies’ massive search engine advertising deal pass regulatory scrutiny. These concessions include limits to the original plan that would have bolstered Yahoo’s revenue to the tune of $800 million.

The companies submitted their revised proposal to Department of Justice officials over the weekend. This move represents a last ditch effort to come to terms with the regulators before calling the massive search deal off entirely.

The two companies are offering up ways to drastically limit the scope of the agreement to gain regulatory approval. The DOJ is preparing to bring suit against the deal unless the two companies agree to limit their collaboration.

The revised agreement limits Yahoo’s revenue from the pact to less than 25 percent of its overall search revenue. The revision also substantially decreases the term of the agreement from up to ten years to only two. Advertisers will also have the ability to opt out of showing their ads on Yahoo’s search results.

Yahoo initially estimated that the partnership with Google could increase its total revenue by as much as $800 million. Under the terms of the new agreement, the deal would only be likely to contribute $400 million to the company’s search revenue.

The two companies collectively represented over 80 percent of US search queries in July according to Comscore. Of that number, Google dominates the industry with over 60 percent of US searches going through its search engine.

Yahoo has been facing an erosion of its stock valuation in recent months. From the company’s struggling growth to the failed takeover bid by Microsoft earlier in the year and a worsening economic climate, Yahoo is struggling to find a way to recover its previous luster.

It’s still unclear whether the DOJ will approve the agreement under the new terms. The regulators are eyeing the search advertising deal to ensure that it doesn’t give Google a monopoly on the search market

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