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Summary:

The top legal officers from Google (NSDQ: GOOG), Yahoo (NSDQ: YHOO) and Microsoft (NSDQ: MSFT) are currently testifying in front of the U.S.…

The top legal officers from Google (NSDQ: GOOG), Yahoo (NSDQ: YHOO) and Microsoft (NSDQ: MSFT) are currently testifying in front of the U.S. Senate Committee on the Judiciary, headed up by U.S. Sen. Herb Kohl, D-Wis. The hearing covers the Google-Yahoo search ad agreement, as well as the broader competitive landscape of online advertising. Setting the one for the talks, Senator Kohl wondered whether the deal would “reduce Yahoo to nothing more than the latest satellite in the Google orbit.” We’ll be updating as needed, and if you’d like, you can follow along via livestream here (RealPlayer req.).

Some highlights from the opening statements:

Michael Callahan, general counsel, Yahoo: “The purpose of this commercial arrangement, and the intent of this hearing moving forward, is to make Yahoo a stronger competitor.” Callahan reiterated several times that Yahoo remains a competitor to Google and plans to compete vigorously. Not too many surprises from Callahan.

David Drummond, chief legal officer, Google: A bit more revelatory, Drummond argued that while both companies will see higher revenue, it’s not because they plan to raise prices, but by delivering “more relevant ads to more users.” He also pointed out how Microsoft’s complaints are self serving, since they’re a competitor. Drummond’s full statement can be found here (.pdf)

Brad Smith, general counsel, Microsoft: Basically, paraphrased: ‘Yeah, of course we’re self interested.” He claimed its sophistry or perhaps semantics to say there won’t be price increases. He pointed out that no company has ever controlled 90 percent of a national media market, as Google would after this deal. More after the jump

From the Q&A:

One search pole: The closest the hearing has come to fireworks has been a disagreement between Brad Smith and Michael Callahan over some statement Jerry Yang (probably) made in a meeting between Yahoo and Microsoft. Evidently Yang predicted that there would eventually be “one pole” in the internet search game and it would be Google, and so it didn’t make sense for Yahoo to get into bed with Microsoft on this front. Smith suggested this statement contradicts Yahoo’s claim that it still plans to compete vigorously on search and search ads. Callahan couldn’t recollect Yang having ever said that (the senators did their ‘you are under oath’ line a couple of times), though he disagreed with Smith’s characterization of the conversation, either way.

Third-party perspective: Also present at the hearings are third-party advertisers. Tim Carter, CEO of AskTheBuilder.com, argued that it would set a dangerous precedent to tell one company that they can’t run Google ads. He asked, rhetorically, if that could one day happen to his own company. Conversely, Mark Crowledy, CMO of Yellowpages.com, warned about the diminished marketplace and limits on ad buyers.

Bottom line: The hearing is over without too much ground breaking. The various sides argued back and forth along predictable grounds, much of it revolving around price. The sharpest points came from Google’s David Drummond, who argued that search ads aren’t commodities. Google ads are more expensive, he said, because those clicks deliver more value to advertisers and searchers: “It’s amazing that Google could be successful if all we did is take the same old ads and price them higher.” One thing that seems clear is that the traditional corpus of antitrust law isn’t well suited for this market. Yes, prices to reach Yahoo searchers may rise after this deal (as Microsoft alleges) and searchers and advertisers could see a better value (as Yahoo and Google allege). Under a traditional framework, this might sound confusing. The question is whether politicians and other government officials, not always known for their sophisticiation, see things this way.

  1. Mitali Pattnaik Tuesday, July 15, 2008

    You say: " Brad Smith, general counsel, Google"
    Brad Smith is at Microsoft, not Google… please fix this.

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  2. Joseph Weisenthal Tuesday, July 15, 2008

    Thanks Mitali. Fixed.

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  3. It is amazing how Google, Yahoo and Microsoft are competing against each other for their market share

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