Google-Yahoo Redux: Why deal in Japan is worse than attempted 2008 deal


By Dave Heiner
Vice President and Deputy General Counsel

In November 2008, the U.S. Department of Justice determined that a plan by Google to provide advertising next to just a portion of the search results on Yahoo’s competing search engine was illegal under the antitrust laws. Google wasn’t especially interested in the additional viewership for its ads—it already had massive ad volume—but rather in scuttling Microsoft’s efforts to combine with Yahoo to form a stronger competitor to Google in search.  Google was quite open about this.  When asked in September 2008 to name the most important development for Google in the preceding six months, Google’s Eric Schmidt replied “the Yahoo business deal . . . It was a setback for Microsoft.”  (Ken Auletta, Googled, 2009)

History seems to be repeating itself, now on the other side of the Pacific. The two main search advertising platforms in Japan are run by Google and Yahoo Japan (which is controlled by Softbank Corp.)  Google plans to replace Yahoo Japan’s search advertising platform with its own, reducing the number of ad platforms in Japan to just one.  Google will take over the natural search results on Yahoo Japan too, replacing the Yahoo search service that Yahoo Japan had optimized for Japanese queries. The proposed deal will eliminate search competition in Japan—in paid advertising and natural search results. 

Today Google accounts for about 51% of paid search advertising in Japan.  Yahoo Japan accounts for 47%.  Their combined share of natural search results is almost as high.  If Google is permitted to proceed with its plan, it would gain nearly complete control over search and search advertising in Japan through contract, not organic growth.  Google alone would decide what consumers in Japan will find, or not find, on the Web.  And Google will obtain massive amounts of data regarding the search history and Web sites visited by every consumer, business and government agency that conducts Web searches.

Google’s plan would cement its position as essentially the sole provider of search results in Japan for years to come.  That is because if Google gains control over the roughly half of Japanese search queries that it doesn’t already control, it will deprive competing search engines of the query scale that is essential if they are to improve their own search results in Japan.  In fact, the competitive effects of the plan may be felt globally because Japan is the third largest generator of search queries in the world (after the United States and China).  At a time when competing search engines are scrambling to gain query volume, the billions of queries at stake in Japan loom large indeed.

The attempted Google/Yahoo deal that the U.S. Department of Justice found to be illegal was not nearly so far-reaching.  Under that deal—as Google emphasized at the time—Google and Yahoo would have continued to compete fully in natural search results, i.e., the core search “product.”  They would have continued to compete in monetization too, Google said, except that Google would have provided advertising on a portion of Yahoo search results pages in North America. Yahoo would continue to control the look and feel of its search results pages.  And the entire deal was said to be non-exclusive.  Notwithstanding this limited scope, the DOJ deemed this agreement illegal because “Google and Yahoo! would have become collaborators rather than competitors for a significant portion of their search advertising business, materially reducing important competitive rivalry between the two companies.” 

Google abandoned its earlier deal with Yahoo in the face of the DOJ’s conclusion that it was illegal.  The DOJ was reportedly just hours away from filing a federal lawsuit against Google that would have charged the firm with monopolization and restraint of trade.  Less than two years later Google has entered into a deal that would turn its only major competitor in Japan into a collaborator, rather than a competitor, across natural search results and advertising.  In doing so, Google has engineered a transaction that, once again, would deprive its search rivals of needed search query scale. 

Google reports that it already received approval from the Japanese Federal Trade Commission for the deal, even before it was announced and before the JFTC reached out to advertisers, publishers and competitors to learn about the likely competitive effects of the deal.  It will be interesting to see over the next few weeks if that is really accurate.

Comments (9)

  1. brad says:

    It sucks when the tables are turned, eh Microsoft?

  2. Brent says:

    I can understand the frustration with such large geographic differences in regulatory approach. But the part MS could and should have controlled is convincing the customer you had the right technology and roadmap. According to both Y! Japan and Softbank, you failed to do that.

  3. Mentis says:

    If a competition regulation commission exists in that country, this deal should be blocked outright. Clear case of price fixing agreement between chief competitors, and customer is the loser.

  4. me says:

    I do not see anything wrong with the deal since any business is about the right tools for the job. If Microsoft did not leave it up to been the right tool, then I see no point in regulation

  5. bb says:

    the ACCJ and MS should act quickly to prevent this from happening in reality. This is completely outrageous and will kill growth and competition for large SEM drives sites. This must be overturned and Amazon, MSFT, and others must start litigation NOW!!

  6. I am Taiwanese says:

    I believe Google WON`T do such bad trick to control Japanese` search freedom.

    Google is FREE!  Unlike YOU,Microsoft,almost every product has to pay at a high price.

    That`s why China has numerous pirate copy of Windows and Office…..

  7. oh my god says:

    I like Google!

    I use Google Chrome! Google Chrome is SOOOOO FAST!

    I always use Google to search the net!

  8. Kaz says:

    Isn't it just a quality issue? When I perform searches in English, Bing works fine. Unfotunately, for searches with terms written in Japanese, results from Google are more satisfactory than those from Bing Japan.

  9. Business Phone says:

    It is one of the best search engine. I always use this for searching.

    -annasmith

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