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Several Silicon Valley Congress members have urged the U.S. Department of Justice not to interfere in the pending online advertising deal between search engine giants Google (Nasdaq: GOOG) and Yahoo (Nasdaq: YHOO).
Mountain View, Calif.-based Google and Sunnyvale, Calif.-based Yahoo are situated in the heart of Silicon Valley.
The lawmakers outlined their concerns in a Sept. 26 letter to the DoJ, saying that the fast-growing online ad market would be harmed if regulators should decide to block the deal.
The Google-Yahoo alliance has garnered a great deal of criticism from other players in the Internet advertising market since it was first announced last June. The deal gives Yahoo access to Google's inventory of search ads, as well as some of the revenue associated with those ads.
Not Price-Fixing
At the center of the controversy over whether to allow the deal to go through is the fear that Google and Yahoo together would control too much of the online advertising market. Other players in the market include Redmond, Wash.-based Microsoft (Nasdaq: MSFT), Ask.com and other search engines.
Whether there is validity to those fears, though, is questionable.
"People talk about concern over the price-fixing of clicks, but it's an auction-based system," Colin Gillis, an equity analyst with Canaccord Adams, told the E-Commerce Times. "Truly, it's the advertisers who are bidding on the keywords. It's not a fixed-price system. If advertisers think it's too expensive, they can go to Microsoft or Ask.com."
The proposed deal is not the first Google and Yahoo collaboration, Gillis noted.
"Google has powered Yahoo search before," he said. "This is not a first-time deal."
Yahoo on the Ropes
Once the most dominant player on the Internet, Yahoo's influence has steadily waned over the past several years as a result of competition from Google and Microsoft. This spring, the company went through a tumultuous internal battle involving its board of directors after Microsoft made an unsolicited bid for Yahoo.
"Yahoo's on the ropes right now," Gillis said. "A deal like this would give Yahoo the cash it needs to reinvent itself."
Yahoo has already taken steps to do so. Earlier this month, the company announced a new technology platform that makes it more efficient for advertisers to post display ads on the Internet. Display ads comprise a much larger piece of the overall online ad market than search ads.
A Google-Yahoo alliance would give the two companies a dominant position in the online advertising market, Gillis acknowledged, but he questioned the wisdom of letting Yahoo's share continue to deteriorate.
"It's true that there's still a lack of other major players," he said, "but having a weak Yahoo become weaker -- does that help anything?"
