Will A Google/Yahoo Ad Deal Really Impact Ad Prices?

from the not-so-clear dept

Tue, Sep 9th 2008 2:48am — Mike Masnick

The Association of National Advertisers (ANA) has sent a letter to the Justice Department opposing Yahoo's plan to hand much of its search advertising over to Google. We've already explained some reasons why this combination shouldn't set off antitrust alarms, but the reasons given by the ANA don't make much sense. It claims that the deal would basically mean that one company would control 90% of the market, which would lead to increased prices for advertisers. However, that doesn't necessarily seem true to follow -- because Google doesn't set prices for ads. Google's ad system is, famously, an auction system where the prices are set by the market. So it's difficult to see why the inclusion of Yahoo's ad inventory would significantly raise the prices -- unless the argument is that the market is artificially depressed right now, and this would just raise it to the proper levels. However, apparently, that might not matter much, as reports are coming out that the Justice Department has already hired a big time antitrust lawyer to use against Google. This is increasingly looking like a political attack on a company that is "big" rather than looking to see if its success actually harms or helps consumers.

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Filed Under: advertising, antitrust, auctions, justice department, monopolies, prices, search marketing
Companies: google, yahoo

17 Comments

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Duane (profile), 9 Sep 2008 @ 4:37am

Monopoly-Shmonopoly
I'm not ready to say Google's got a monopoly on anything yet, but logically speaking if they did control 90 or 80 or even 70 percent of the ad market, there's nothing that says they can't change their system, set a minimum bid or employ all manner of creativeness to increase revenue. That's their goal after all, and with a big hunk of the market, the ability to vote with your feet is very limited.

I'm fairly pro-Google just as far as things go, but I'm not blind to the reality that they're in it to make money. Sometimes the best, most natural way to do that is a monopoly. That's why we have a government -- to limit the eventual excess of capitalism.

Also, your third link provides this:
'Microsoft also has objected to the deal, saying it would unfairly foreclose competition on the Web. In Senate hearings in July, Microsoft's general counsel, Brad Smith, testified that "if search is the gateway to the Internet, and most people believe that it is, this deal will put Google in position to own that gateway and the information that flows through it."'

I think Microsoft knows a monopoly when it sees one.
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wasnt me!, 9 Sep 2008 @ 4:56am

well in theory, if yahoo adds are handled by google then yes the prices should go up.

the demand for adds will remain the same, but more ppl will have to turn to google for there adds and since its an auction system that will create more competition for the add words and so more bids and more bids = higher prices.
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Anonymous Coward, 9 Sep 2008 @ 5:12am

Re:
dude, there is only one 'd' in ad. It's short for advertising, not addvertising.
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Anonymous Coward, 9 Sep 2008 @ 5:22am

Re: Re:
Drives me crazy when people do that too. NO idea why, normally I'm laid back about that sorta thing.

This is kind of a sticky situation. On the one hand, the government shouldn't be allowed to come in and tell a business they have to make product X (barring wartime efforts ala WW2) and they shouldn't punish a company for doing too well.

With anti-trust stuff, the whole point I thought was to react to a monopoly. If someone has the full market, that's fine. Just so long as they aren't using unfair business practices to keep any competition from entering the fray.

Blech.
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Isaac K (profile), 9 Sep 2008 @ 7:22am

Re:
slight flaw in the reasoning here: the market for advertising isn't on Google, it's on the entire Internet. If people find that the price for advertising on the big G is above the cost they are willing to pay, they won't advertise. Simple. Fewer demands for ads due to increased price=price drop. it's about the equilibrium.
Similarly, if they find that the competition in Google Ads is more costly than going with a thrid party service, they will switch to the constant rate third part service. Again, this lowers the consumer base for Google Ads and leads to a lower average auction price. Other companies will find themselves getting more revenue in advertising, and see fit to raise their fixed prices till they are roughly in line with Google's average ad auction.
Ironically, since the cost to transfer, enter, and exit the market is so small for the consumer, and the cost of information almost nil, a 'near monopoly' of Google in AUCTION ADVERTISING will actually be more likely to adjust the market to equilibrium levels.

If that means that smaller companies won't have the revenue to advertise online, then that's simply the result of an open market, and is unattributable to Google.
Fact is, Google is better off NOT shutting out the little players, who offer revenue to Google at nearly ZERO marginal cost. Adopting a high flat fee system will destroy both their reputation and their major source of revenue.

I'm not worried.
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Anonymous Coward, 9 Sep 2008 @ 7:48am

Re: Re:
I am worried, but not about google abusing the market share that it has in ads. they're going to get smacked down for no reason, or rather the reason is because to the outside world it LOOKs like they control the ads and pricing.
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IMR, 9 Sep 2008 @ 7:59am

Re:
I agree. I bet a given keyword is more expensive in Google Ad system compared to MSN or Yahoo or Ask.com, even if its based on auctions.
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ben, 9 Sep 2008 @ 8:01am

Monopoly
Monopoly laws where created to stop people like J.D. Rockefeller from abusing people and competitors with unfair market practices. Google is an American company started by a couple of average Americans with a good idea. We should not be focused on who controls the advertising but weather they are doing it in a fair and equitable manner.
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neil, 9 Sep 2008 @ 8:19am

just because google dosnt set it's own prices now does not mean it will never set its own prices in the future. hitler was elected into power but look what happened when he got total control. never let anything have as much power as google or the world is doomed.

think about it, they do. they read your email.
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Anonymous Coward, 9 Sep 2008 @ 8:27am

Re: Re: Re:
you are crazy ad add it make no difference unless you have ADD and that is why you notice it subconcesly you think people are making fun of you and your disability
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Lucas Hodgson, 9 Sep 2008 @ 9:24am

Re: Re:
The idea that market forces will control advertising costs only makes sense if Google’s auctions match what most people think of as auctions – the sort of auctions you’d see if you went to your local auction house. They’re not. They’re complicated algorithms known mostly only to Google that, as has already been mentioned in these comments, can be changed at any time. At least one writer for The Register has made a compelling case.

Google’s riches rely on ads, algorithms, and worldwide confusion
Eye of newt: Inside Google's AdWords auction
Google remodels top secret money machine

Isaac K’s comment that “the market for advertising isn’t on Google, it’s on the entire Internet” also misses a fundamental point. As Google acquires more and more market share, the more and more Google is the Internet. If you’re invisible to Google, you effectively don’t exist on the Internet. (I know we’re talking about the web and not the Internet as a whole, but, even there, the two terms are interchangeable for most people.)
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dave, 9 Sep 2008 @ 9:37am

NO MIDDLEMAN REQUIRED
There is no reason for Google - if you are in your hometown and you need to ge on google to get a subway coupon then you are stupid. Mobile Search is not needed 90% of the time. The ads are useless in context with your activity 90% of the time and this model will change. Google and Yahoo SHOULD NOT be allowed to control ads through exclusive relationships with mobile carriers. The subscriber or end user should have the ability to choose what ever method, search engine, or other service on their own phone. We went from WALLED GARDENS to Community Gardens, a prettier name but the same result, closed network access. Do not support Google/Yahoo on mobile search - support your favorite store, vendor or organization and the prices of your products will be less.
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Francesca Romano, 16 Sep 2008 @ 1:59pm

Google Yahoo Merger
Google Yahoo Merger

If you would like to learn more about the Google Yahoo Merger, watch this video from Industry expert Dan Savage. Mr. Savage discusses how Google destroyed his business and the impact that a Google Yahoo Merger could have.
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Replica Fairings, 2 Dec 2008 @ 8:28am

I would say that Yahoo is just trying to attached himself to the big ship and get a ride for free, thinking they would be left behind if they don't do a move like this.
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bp-511, 5 Feb 2009 @ 11:24pm

Impact exist
I think that inevitable, our campany use the Yahoo and Google keyword AD for the price advantages, the TV ad will change the price to a lower level to attrack us to deal with them
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Mexican Breakfast Food, 13 Feb 2009 @ 7:02pm

I read somewhere that Yahoo will follow closely Google's footsteps in order to keep the quality of their services. I think that is not fair.
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CANON BP-511 Battery, 12 May 2009 @ 9:04pm

Impact exist
we use Google keyword AD for the price advantages, the TV ad will change the price to a lower level to attract us to deal with them
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