Time For Google (GOOG) To Dump Yahoo! (YHOO) Deal

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Yahoo! (YHOO) needs the deal for Google (GOOG) to sell search advertising for the portal company more than Google needs it. The world’s largest search firm may make a modest sum off its commissions from the partnership, but given Google’s size it is not likely to have much of an effect.

On the other hand, Yahoo! was able to keep itself out of the clutches of Microsoft (MSFT) to some extent because it said that it could make several hundred million extra dollars by outsourcing part of its sales effort to its larger search rival.

The Justice Department and major advertisers do not buy into the Yahoo! view of the world. Having the two largest search companies in American sharing a sales operation might be anticompetitive. Having such a big slice of the pie could lead to higher advertising rates.

Justice appears anxious to go after the partnership in earnest. According to The Wall Street Journal, "investigators are continuing to build a lawsuit to block the deal, worried it would give Google too much power in online advertising."

Google would be best off to quietly walk away, It does not need lawyers from Washington working through it underwear drawers. With almost 70% of the search market, Justice may decide it wants to spend more time with Google’s pricing operations whether Yahoo! is involved or not.

Google has a great deal to lose by moving forward with its Yahoo! contract. It can afford to abandon the deal. Yahoo! can’t do without it, but that won’t matter.

Douglas A. McIntyre