UPDATE 1-Microsoft seeks support against Google-Yahoo deal

(Adds statement from Microsoft, paragraph 8)

WASHINGTON, June 13 (Reuters) - Microsoft Corp MSFT.O sought on Friday to enlist support for its opposition to a new advertising collaboration deal between Google Inc GOOG.O and Yahoo Inc YHOO.O, two sources familiar with the matter told Reuters.

One day after the companies announced an agreement allowing Google to sell search ads on Yahoo’s Web site, Microsoft contacted advocacy groups that work to influence policy in Washington.

According to one source who was contacted by Microsoft, the software company said in an e-mail that the Google-Yahoo agreement would “limit choices for advertisers and publishers” and “destroy a competitive alternative.”

Specifically, Microsoft takes the view that the deal is akin to a price-fixing agreement, with Google and Yahoo effectively setting a minimum price for advertisements on some key word searches, according to another source familiar with Microsoft’s thinking.

“The effect of that is sitting down and agreeing, ‘We won’t go below (the minimum price)’,” this source said. Microsoft also believes the arrangement will lead to the demise of Yahoo’s own search advertising business, eliminating a competitor, he said.

Microsoft spokesman Jack Evans on Friday reiterated Microsoft’s overall objections to any Google-Yahoo deal, saying it would make the Internet advertising market less competitive.

“Our position has been clear since April that any deal between these two companies will increase prices for advertisers and start to consolidate more than 90 percent of the search advertising market in Google’s hands,” Evans said.

Microsoft later said in statement its lobbying approach “reflects our belief that we have a responsibility to engage with policymakers on issues that impact our products, customers, shareholders and the industry overall ...”


It would be something of a role reversal for Microsoft if the company also decides to press the U.S. Justice Department to file an antitrust lawsuit. Microsoft spent years fighting an antitrust lawsuit by the department alleging that it abused its Windows monopoly. It settled the case in 2002 and agreed to restrictions on its business practices.

The Google-Yahoo collaboration does not need up-front approval from U.S. antitrust authorities since the two companies are not merging. However, the Justice Department could challenge the arrangement in court if it concluded that it would restrain competition between them.

The companies agreed to wait 3-1/2 months for regulatory approval and to offer a way to end it if Yahoo is taken over.

Several antitrust experts said the deal would probably not be opposed by U.S. antitrust authorities. But others disagreed, saying the Justice Department could be swayed by Microsoft’s arguments, particularly if the deal generates concern among advertisers and publishers.

Google and Microsoft are bitter rivals. Microsoft staunchly opposed Google’s offer to buy advertising company DoubleClick for $3.1 billion last year. U.S. antitrust regulators approved the deal in December.

Google has likened its new deal with Yahoo to outsourcing agreements that are not uncommon among competitors in other industries. The company stressed that the deal is not exclusive and leaves Yahoo free to pursue its own advertising business and to partner with other companies in the business.

Google General Counsel Kent Walker on Friday disputed the idea that the companies would be setting prices in any way. Prices for the Internet search ads, he said, are determined through an ongoing competitive auction.

“No one’s coming in and saying, ‘By the way, we’re going to set the prices for those ads,’” Walker said.

Walker said Yahoo would remain a “robust” company and would have ample incentive to invest in its own search advertising business.

“It’s not committing to putting all its traffic though our platforms -- far from it,” Walker said. (Editing by Toni Reinhold)