Google-Yahoo! Ad Pact Hurts the Little Guy

When two bitter rivals start cozying up, you have to get suspicious. Heartwarming as it may be to see big tech companies working together, small businesses may be the big losers in a proposed partnership between Google(GOOG Quote) and Yahoo!(YHOO Quote)

Desperate to avoid a sale to Microsoft(MSFT Quote), Yahoo! has been grabbing any opportunity to increase revenue and shore up its free-falling stock price. In June, the company announced a deal that would allow Google to sell ads on Yahoo! sites. Together, Google and Yahoo! sell more than 80% of all U.S. search ads, the most profitable part of the online ad business.

The partnership is being promoted as a convenience to advertisers. In one transaction, businesses will be able to buy ads on everything from Google's search pages to Yahoo!'s email pages, allowing their message to be seen by many more people with no extra effort.

The downside? Google, already dominant in online advertising, edges that much closer to being a monopoly. That's why the Justice Department has been reviewing the deal since it was announced in June.

And it explains why this week, advertisers started speaking out against the partnership. The Association of National Advertisers, a trade group that represents many Fortune 500 companies, demanded the Justice Department block the deal, saying it would raise prices and concentrate ad-buying power in too few hands.

If biggies such as Wal-Mart(WMT Quote) and Johnson & Johnson(JNJ Quote) are worried about Google's power over online advertising, the situation is even more dire for small businesses.

Online marketing used to be a place where smaller, niche businesses could compete against the big guys. While major corporations poured their ad dollars into TV and splashy magazine spreads, a small business could afford to buy ads targeted to specific Internet searches, reaching the customers it wanted at a relatively affordable price.