Microsoft News Tracker

Yahoo’s proposed deal with Google to run some Google search ads may be only for the USA and Canada, but European Union Competition Commissioner Neelie Kroes has apparently spotted something there to raise her hackles:

European Union antitrust watchdogs are looking into a planned deal between Internet giants Google Inc and Yahoo Inc to share some advertising revenue.

"In mid-July, we decided to open a preliminary investigation on our own initiative into potential effects of the Google-Yahoo agreement on competition in the European Economic Area (EEA) market," said Jonathan Todd, a spokesman for European Competition Commissioner Neelie Kroes.

Neelie always has her hackles raised, of course, but while I think there’s a lot of antitrust gold to be mined in Google’s stranglehold on search, the deal with Yahoo is hardly a poster child. Instead, how about a thousand examples similar to Sourcetool.com as described by Joe Nocera last Friday in the NY Times?

There’s even more Google antitrust gold in the latest whine of the World Association of Newspapers (WAN) if you ignore their shortsighted view that somehow preventing the Yahoo deal will save them from Google. Reading between the lines it’s entirely clear that they currently in thrall to Google and Yahoo’s independence or lack thereof is irrelevant.

I also see that that some of the always pesky US state attorneys general have joined the Google hunt also using the Google-Yahoo deal as an excuse. Now if there exist any greater publicity hounds than Neelie Kroes, it’s this crew and they certainly aren’t going to limit themselves to odd deals with Yahoo. If I were a betting man, I’d say that Google is shortly in for a world of antitrust hurt and no one will have greater schadenfreude than Microsoft.

John R. Wilke at the WSJ reports today that the US Department of Justice has retained top rank litigator Sanford Litvack to help them determine whether there are grounds for antitrust action against Google:

The Justice Department has quietly hired one of the nation’s best-known litigators, former Walt Disney Co. vice chairman Sanford Litvack, for a possible antitrust challenge to Google Inc.’s growing power in advertising.

Mr. Litvack’s hiring is the strongest signal yet that the U.S. is preparing to take court action against Google and its search-advertising deal with Yahoo Inc. The two companies combined would account for more than 80% of U.S. online-search ads.
…
For weeks, U.S. lawyers have been deposing witnesses and issuing subpoenas for documents to support a challenge to the deal, lawyers close to the review said. Such efforts don’t always mean a case will be brought, however.

Mr. Litvack, who was the Justice Department antitrust chief under President Jimmy Carter, has been asked to examine the evidence gathered so far and to build a case if the decision is made to proceed, the lawyers close to the review said.

It isn’t clear whether a U.S. challenge would target the Google-Yahoo deal alone or take on broader aspects of Google’s conduct in the growing online-advertising business.

And the last part is the rub of course, since overturning the Google-Yahoo deal (which Microsoft has vociferously opposed) would only really hurt Yahoo, while an investigation of abuses of Google’s dominant market position could result in a world of hurt for them and renewed life for Microsoft’s online advertising ambitions.

AdAge’s Abbey Klaassen has a juicy rumor that Microsoft is negotiating with the WPP Group to swap some misfits they picked up in their respective acquisitions of aQuantive and 24/7 Real Media:

Almost six months after the companies started talking, WPP and Microsoft have reopened talks that could have the software company unloading Avenue A/Razorfish. But the question is whether Microsoft could ever get anyone to buy the digital ad agency for the price at which it needs to sell it.

What Microsoft paid for the agency and what any holding company would shell out are vastly different figures — although WPP holds an edge over other holding companies because it has assets Microsoft might be interested in, namely the ad-serving technology bit of 24/7 Real Media.

Here’s how a deal could unfold, according to people familiar with the discussions: Microsoft unloads the agency in exchange for a WPP package that includes 24/7’s Open AdStream publisher ad-serving tool plus cash. While Avenue A’s price would be higher than most agency deals, very few interactive agencies with that kind of scale are available for acquisition.

Avenue A|Razorfish is an ad agency specializing in interactive media and is an uncomfortable fit for Microsoft which wants to make money from all advertisers and publishers without questions of favoritism about a house agency. Similarly, WPP Group is a holding company for advertising agencies and the Open AdStream ad serving tool doesn’t fit either.

Klaassen’s thesis is that since Microsoft overpaid for aQuantitive, it is going to be hard to find someone to pay for Avenue A|Razorfish anywhere near what Microsoft paid. That’s why a swap with WPP Group is a good fit since it is similarly believed to have overpaid for 24/7 Real Media and they could obfuscate the real value with a swap. I’m dubious as to how important that reason really is since acquisitions often result in a grab bag of extra pieces that are sold off at "bargain sale" valuations. Of course, since Avenue A|Razorfish accounted for 60% of aQuantive’s revenues, it is a trifle hard to see which is the tail and which is the dog.

In any case, beyond face-saving reasons, it seems like a good match. WPP specializes in owning ad agencies and Microsoft needs an ad serving service in their eternal quest to keep up with Google which is busy widening the beta of their competing (and free) Ad Manager service.

Yesterday Microsoft held their annual Financial Analyst Meeting for 2008 and while you can view the full video and (nearly unreadable) transcripts of the presentations, it was mostly predictable fare. However, there were a few newsworthy nuggets::

Steve Ballmer (Chief Executive Officer) 

• Yahoo: "it didn’t work out. Fine, we’re done. We can move on. Does that mean that nobody will ever talk to anybody again? I suspect the answer to that question is also no. It’s a long time in a big world, but we’re comfortable proceeding as we are on our own with our people, with our strategy, independent innovation and I think what we really still have in search and advertising is a two-horse race [Google and Microsoft - ed.]."
• Facebook: Satya Nadella who helped Ballmer handle the online business (since Kevin Johnson was missing) revealed an extension of the Facebook advertising relationship:

  "One last thing I wanted to also talk about is an extension of our Facebook relationship where we are extending it to Search and Page Search. We will be providing an API to Facebook where they will create a rich search experience, including a Web search for the Facebook users. And that’s something that they will launch in the fall, working with us, and it’ll carry both our Web results as well as our Page Search advertising."

Bill Veghte (SVP, Online Services)

• Windows Live: Windows Live Wave 3 will ship this year
• Internet Explorer 8: IE8 will arrive in 2008 with a beta in "a month or so."

Chris Liddell (CFO)

• Yahoo again: "I think the chances of us buying Yahoo! on a full acquisition basis are so small that they are essentially negligible. I never say never. Who knows in years to come. But a full acquisition certainly in the timeframe and sort of economics that we had previously thought essentially makes no sense.

  We still have the possibility of doing a search transaction, which we think makes some economic sense. If I had a worry it’s the parallel paths continue, and about the time Yahoo decides that search deal makes sense for them is probably about the time that we have committed to our own plan so much that it may no longer make sense for us."

Just like their Live Search Club , Microsoft’s Live Search cashback incentive program has drawn some "entrepreneurs":

That’s right, $630 in cash can be yours for $714. But if you access the page through a Live Search ad link that returns 35 per cent of the purchase price, you can make up the difference. And then some. So you make a profit, and so does the seller. At the expense of Microsoft and eBay.

Hit the link for further details as it is not clear that Microsoft is actually offering 35% anymore, but this was as inevitable as death and taxes.