Consumer Advocates Exhort DOJ, FTC To Scrutinize Microsoft-Yahoo Deal

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The Center for Digital Democracy and Consumer Watchdog urge the Department of Justice and Federal Trade Commission to look closely to make sure the proposed Microsoft-Yahoo search deal does not violate antitrust laws or citizens’ privacy rights. Fearing too much meddling from antitrust regulators, the Competitive Enterprise Institute calls for the DOJ and FTC to bless the deal. One reader argues that Yahoo shareholders will turn tail and run from Microsoft.

If Microsoft and Yahoo are to consummate their search and search ad agreement by early 2010 to start chipping away at market leader Google’s 65 percent market share, they are going to have to run through quite the gauntlet of opposition.

Google hasn’t said much about the July 29 agreement beyond the fact that it is interested in learning more about the deal, which gives Microsoft’s Bing search engine the right to power Yahoo’s search for a decade. Yahoo expects to collect money on the search ad sales.

Still, experts expect Google to at the least whisper horrible things about the pact in the ears of antitrust regulators such as the Department of Justice and Federal Trade Commission.

Consumer advocates are being much more vocal about the pact because Microsoft’s Bing and Yahoo’s search engine process a lot of user data. Organizations want to make sure any consumer data shared between the two companies is closely protected.

The non-profit Center for Digital Democracy said it will ask regulators in both the United States and EU to closely examine the proposed data collection, privacy and online ad-related business practices of the deal.
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Jeffrey Chester, executive director for the CDD, told eWEEK that while the partnership should bring some much needed competition for Google, he said "the further consolidation of the global digital advertising system should be a concern to Internet users, privacy advocates, online marketers and competition regulators."

"Regulators will have to demonstrate to both consumers and search advertisers that they will actually benefit from this proposed deal: Will it really reduce the cost of search ads, bring tangible financial gains to consumers and truly protect our privacy?" Chester said.

Chester also wondered if the deal isn’t the first step in the latest attempt by Microsoft to assimilate Yahoo in its entirety, something the software giant failed at in February 2008, when Microsoft tried to acquire Yahoo for $44.6 billion.

"We are concerned that this agreement is merely an initial step in what will eventually be the complete integration of Microsoft and Yahoo, including mobile, display, ad exchanges, research and development, etc.," Chester said. "Both Microsoft and Yahoo understand that to compete in today’s online advertising marketplace, search and display marketing—including data collection, analysis and targeting—must be closely linked."

John Simpson, an advocate with non-profit group Consumer Watchdog, also said the Microhoo deal must be closely scrutinized by the Federal Trade Commission, the Justice Department and the European Commission to ensure that there are no antitrust violations and that user privacy is guaranteed.

"If the result of this deal is that there are two stronger Internet search enterprises who exploit users’ data at the expense of their privacy rights, consumers are worse off, not better," said Simpson. "Users must have control of their data—whether it is collected and how it is used. Guarantees of that control must be in place before this deal is approved. Justice and the FTC can—and must—insist on this."

Not all consumer advocates are so nervous and skeptical about the deal.

The Competitive Enterprise Institute, a nonprofit group that studies the intersection of regulation, risk and markets, said that federal regulators can best serve consumer interests by letting the deal happen.

Ryan Young, a fellow in regulatory studies for the CEI, said that if Microsoft and Yahoo are to compete successfully versus Google, they will need to put together the best search engine they can. Young said:

    "They should be allowed to try—their own money is at stake if they fail. Either way, Internet users stand to benefit. Bing and Yahoo Search should improve from the proposed partnership, which will also force Google to make its own search engine better, lest it be left behind. This is how a competitive, contestable market works. The goal of antitrust policy is to benefit consumer welfare, but there is nothing regulators can do to make an already fiercely competitive market even more so."

Wayne Crews, vice president for policy and director of technology studies for CEI, added that antitrust investigations "steer the market in unnatural directions, creating instabilities in entire industry sectors."

While the world waits to see how regulators view the deal, many Yahoo shareholders will likely oppose the deal. Noting that search is the killer application on the Internet, eWEEK reader James Fox said shareholders may want Yahoo to keep its search assets intact to preserve the company’s 20 percent market share. At the least, shareholders may prefer that Yahoo sell its search assets for loads of money up front.

If not, Fox said Microsoft will just gradually erode Yahoo’s business once it takes over Yahoo’s core search assets.

"Knowing Microsoft’s tradition of benefiting its own apps and properties in detriment to third parties, they slowly will improve MSN to outperform Yahoo," Fox wrote.

Fox isn’t the only one who feels this way. Mahalo CEO Jason Calcanis said Yahoo committed suicide with this deal. More on TechMeme here.

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