Bowing to Regulators, Google Drops Ad Deal with Yahoo

Authored by Mark Hefflinger on November 5, 2008 - 9:05am.

Washington - Unable to appease federal regulators and advertisers concerned about its potential dominance of the web search market, Google (NASD: GOOG) on Wednesday pulled out of its online ad deal with rival Yahoo (NASD: YHOO). The news came as the Department of Justice said on Wednesday morning that the deal, in which Google would have sold advertising for some of Yahoo's web properties, "would likely harm competition in the markets for Internet search advertising and Internet search syndication."

The companies originally struck the partnership in June, as Yahoo was trying to fend off a hostile takeover by Microsoft.

Yahoo said that the deal would have increased its cash flow by as much as $450 million in the first year.

The DOJ, however, had threatened to sue to block the deal, saying that "the arrangement likely would have denied consumers the benefits of competition -- lower prices, better service and greater innovation."

The decision could help drive Yahoo to a combination with AOL.

Reports surfaced last week that the two companies have been examining each other's books in preparation for a potential merger.

The talks reportedly focus on integrating AOL's content and advertising business into Yahoo, with AOL parent Time Warner receiving a stake in the combined company.