Yahoo!'s future depends on how much regulators want Google's overall online ad dominance to be challenged and whether as a result of Facebook's emergence, they're willing to say online search and display ad businesses aren't distinct competitive markets. If they are treated as independent markets by authorities, the only Yahoo merger rumor that increases competitiveness against Google is an AOL (AOL) purchase -- a plan managements rumored to be considering as a growth strategy, but that might take the wind out of a takeover fueled stock surge since August.
The U.S. Department of Justice's record indicates its sometimes looked to build competition against Google even before enforcing usual industry standards of competition. A Google-centric antitrust focus may bode well for Microsoft's (MSFT) potential Yahoo ambition, especially if Facebook's rise is proof that barriers to overall ad display revenue can be overcome.
In a February 2010 decision, the European Commission and DoJ approved Microsoft's Bing partnership with Yahoo that combined the second and third biggest search competitors. The authorities said the tie up would "increase competition in Internet search and search advertising by allowing Microsoft to become a stronger competitor to Google." The partnership nevertheless made the search market a duopoly between Google and Microsoft, with no third competitor. A similar decision in a potential Yahoo-Microsoft merger would need to show that it increases competitiveness against Google. The only way that happens is if they argue online search and display markets aren't distinct.The big question is should they be considered separate? "The key point is that a market is something that can be monopolized profitably -- which means that it must include all close substitutes and have significant entry barriers," wrote Roger Noll an antitrust expert and professor of Economics at Stanford University in an email. The idea hinges on whether customers of search ads regard display ads on Facebook and YouTube as a substitute, according to Noll. Do you click on more ads while on Facebook or in Google searches, is there a difference? Antitrust concerns on a potential Yahoo takeover rose this weekend, when rumors surfaced that Google might finance a Yahoo takeover. The reports also followed speculation that Microsoft would revive its 2007 bid for Yahoo. There are signs that consumers might not care and substitute freely between search and display ads, signaling that barriers to earnings can be overcome. Consider Facebook's disturbance of status quo. According to eMarketer data of online display ad revenue, Facebook's extected to grow ad revenue by 1000% to nearly $3 billion between 2008 and 2012, almost making it Google's biggest competitor. In search ad revenue, Google holds nearly an 80% share that would increase if it took over Yahoo and wouldn't be lessened by already partnered Microsoft and Yahoo. Any way you slice it, AOL, is a distant third player with a 1.2% market share. In its Bing partnership, Yahoo sells ads against Microsoft's search results.
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