All Things Digital

Google (GOOG) co-founder Larry Page recently discounted the idea that a Google-Yahoo partnership would present any potential antitrust problems. We may soon find out if he’s right.

This afternoon, just a few hours after announcing the not-with-a-bang-but-a-whimper conclusion of its negotiations with Microsoft (MSFT), Yahoo (YHOO) said it had inked a non-exclusive search-advertising deal with Google that could, could, be worth about $800 million in annual revenues.

Yahoo explained the deal in another one of its retina-tormenting purple-font press releases entitled “Yahoo to Strengthen Competitive Position in Online Advertising Through Non-Exclusive Agreement With Google.”

Under the terms of the agreement, Yahoo will select the search term queries for which–and the pages on which–Yahoo may offer Google paid search results. Yahoo will define its users’ experience and will determine the number and placement of the results provided by Google and the mix of paid results provided by Panama, Google or other providers. The agreement applies to paid search and content match and does not apply to algorithmic search.”

Yahoo! believes that this agreement will enable the Company to better monetize Yahoo!’s search inventory in the United States and Canada. At current monetization rates, this is an approximately $800 million annual revenue opportunity. In the first 12 months following implementation, Yahoo! expects the agreement to generate an estimated $250 million to $450 million in incremental operating cash flow.”

And what might it generate for Google? The companies are hoping for at least $83 million gross — every 4 months. From Yahoo’s latest SEC filing:

Google may terminate the Services Agreement if, after ten months after the Services are first launched, and each month thereafter, the gross revenues recognized by Google under the Services Agreement are less than $83,333,333 for the four prior calendar months.

Anyway … although the two companies are not required to receive regulatory approval for the deal before moving ahead with it, they’ve helpfully agreed to delay implementation for up to three and a half months while the U.S. Department of Justice reviews the arrangement. “We have been in contact with regulators about this arrangement, and we expect to work closely with them to answer their questions about the transaction,” Google’s Omid Kordestani wrote in a post to the company’s blog. “Ultimately we believe that the efficiencies of this agreement will help preserve competition.”

[Image Credit: AdRants]

Our long national nightmare of unceasing Yahoo-Microsoft headlines is finally over. Shares of Yahoo (YHOO) slipped into the mud this afternoon after the company said it had concluded, “definitively,” whatever spectacularly unrewarding discussions it’s been having with Microsoft (MSFT) without reaching any sort of merger agreement. Redmond, it seems, is no longer willing to pay $33 per share to acquire Yahoo.

Meanwhile, Yahoo and Google (GOOG) moved to complete a search-ad deal.

Dueling statements from Yahoo and Microsoft on the conclusion of their negotiations below. (Carl Icahn’s outraged letter on the whole matter presumably forthcoming…)

Yahoo Announces Microsoft Talks Have Concluded

Yahoo, a leading global Internet company, today announced that discussions with Microsoft regarding a potential transaction–whether for an acquisition of all of Yahoo or a partial acquisition–have concluded. The conclusion of discussions follows numerous meetings and conversations with Microsoft regarding a number of transaction alternatives, including a meeting between Yahoo and Microsoft on June 8 in which Chairman Roy Bostock and other independent board members from Yahoo participated. At that meeting, Microsoft representatives stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo, even at the price range it had previously suggested.

With respect to an acquisition of Yahoo’s search business alone that Microsoft had proposed, Yahoo’s board of directors has determined, after careful evaluation, that such a transaction would not be consistent with the company’s view of the converging search and display marketplaces, would leave the company without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo stockholders.

Yahoo remains focused on maximizing value for stockholders by continuing to execute on its strategy of being the ’starting point’ for the most consumers on the Internet and a ‘must buy’ for advertisers. The online-advertising industry is projected to grow from $40 billion in 2007 to approximately $75 billion in 2010, and the company believes it has the right assets, strategic plan, board of directors and management team to capitalize on this growth opportunity.”

Microsoft Issues Statement Regarding Yahoo

In the weeks since Microsoft withdrew its offer to acquire Yahoo, the two companies have continued to discuss an alternative transaction that Microsoft believes would have delivered in excess of $33 per share to the Yahoo shareholders. This partnership would ensure healthy competition in the marketplace, providing greater choice and innovation for advertisers, publishers and consumers.

As stated on May 3 and reiterated on May 18, Microsoft was not interested in rebidding for all of Yahoo. Our alternative transaction remains available for discussion.”

Microsoft chairman Bill Gates, not Apple co-founder and CEO Steve Jobs, is the most influential IT personality of the past quarter-century.

This according to a survey of IT professionals conducted by the Computing Technology Industry Association. Asked to list the most influential tech personalities of the last 25 years, 84% of respondents listed Gates, and 73% listed Jobs. Also appearing on the list: Dell CEO Michael Dell (53% of respondents); Linux founder Linus Torvalds (47%); Google founders Sergey Brin and Larry Page (also 47%); Cisco CEO John Chambers (44%); Oracle CEO Larry Ellison (36%); Vint “Father of the Internet” Cerf (35%); Microsoft CEO Steve Ballmer (also 35%); and eBay CEO Meg Whitman (30%).

Perhaps it’s time for Google to change the navigation at the foot of its search-return pages from ‘Goooooooooogle >‘ to ‘Moooooooooola >.’
Shares of the company hit an all-time high of $560.70 today before dropping a bit to close at $559.98.

The reason for the spike? New comScore search-engine rankings that show Google dominating the market, with a 56.5% share and analyst speculation that the company may one day reach $100 billion in annual revenue. “Google is poised to make ‘big plays’ that could help the company reach $100 billion in revenue,” said Stephen E. Arnold, author of Google Version 2.0: The Calculating Predator. “Most companies neither understand Google’s capabilities nor grasp the significance of the 9-year-old company’s technology. … Google is perceived as a Web search and advertising company. This is the conventional wisdom, and it is too narrow. Search and advertising lubricate Google’s business model. The technical infrastructure and Google-proprietary technology revealed in patent applications give it a significant advantage in today’s marketplace.”

OK. But advantage enough to generate $100 billion in revenue? Sounds crazy. But then again, who ever thought shares in the company would trade at $560 or that co-founders Sergey Brin and Larry Page would tie for fifth place on Forbes’s annual list of the 10 richest Americans?

Larry Page and Sergey Brin are not your typical billionaires. In fact, if you type billionaire into Google, the picture that emerges–fancy cars, private jets, mansions, jewels, supermodel girlfriends–isn’t anything you’d find in the lifestyle of the Google guys. Page drives a Prius, which costs around $21,000. Brin gets around for the most part on in-line skates, and he still lives in a rented apartment.”

–ABC News, 2004

With its onboard hammocks, full-size sofas and California King beds, it’s a wonder Google’s “party plane” has room for scientific instrumentation befitting the National Aeronautics and Space Administration, but apparently it does. Google and NASA’s Ames Research Center signed a unique deal last month that allows the agency to “regularly collect Earth atmospheric and terrestrial observations in support of science research and analysis” on some of its flights.

In exchange, Google gets to park its customized wide-body Boeing 767-200, as well as its two Gulfstream Vs, on Moffett Field–a NASA-managed airport that is generally closed to private aircraft–for $1.3 million a year. “It was an opportunity for us to defray some of the fixed costs we have to maintain the airfield as well as to have flights of opportunity for our science missions,” Steven Zornetzer, a NASA official, told the New York Times. “It seemed like a win-win situation.”

For Google, certainly, but not for local residents, who’ve long opposed commercial use of the federally owned airfield and who worry that the deal could open Moffett up to other private flights. “The Google flights represent the possibility that the camel’s nose is under the tent, and that NASA is looking at opening up the use of the runways to help pay for it,” said Lenny Siegel, director of the Pacific Studies Center. “The majority of the people in the community are against that. If they are doing science missions, that’s OK. If they are doing it just because they are rich and popular, it is not OK.”

Google is prepared to bid at least $4.6 billion for wireless licenses in the Federal Communications Commission’s upcoming spectrum auction–but only if the FCC agrees to adopt the four license conditions the company has been lobbying for:

• Open applications: Consumers should be able to download and utilize any software applications, content or services they desire;

• Open devices: Consumers should be able to utilize a handheld communications device with whatever wireless network they prefer;
• Open services: Third parties (resellers) should be able to acquire wireless services from a 700 MHz licensee on a wholesale basis, based on reasonably nondiscriminatory commercial terms; and
• Open networks: Third parties (like Internet service providers) should be able to interconnect at any technically feasible point in a 700 MHz licensee’s wireless network.

As Chris Sacca, head of Google’s wireless initiatives, notes over at Google’s Policy Blog, “all four of these conditions adopted together would promote a spirit of openness and could spur additional forms of competition from Web-based entities, such as software-applications providers, content providers, handset-makers and ISPs. The big winners? Consumers.”

And don’t forget Google, which sure as Shinola will use that “spirit of openness” to make its applications and AdWords even more ubiquitous than they are now. And that’s the subtext here, isn’t it? Because what Google’s attempting to buy here isn’t necessarily a wireless network, but the assurance that it will be open regardless of who wins the FCC auction. And that’s sure to come in handy whenever the company gets around to finally launching the GPhone and whatever 3G home-base station technology that inspired its investment, rumored to be a significant one, in femtocell start-up Ubiquisys.

Google is beginning to act like the $159 billion industry heavyweight it really is. The company, which until about 18 months ago had paid politics little mind, is ramping up its presence in Washington. Today Google has 12 lobbyists on staff in its Beltway offices and it’s adding more, among them a former high-ranking Justice Department antitrust lawyer to steward its proposed $3.1 billion acquisition of online ad-tech company DoubleClick through Washington’s power circles. And it’s just pulled off a successful policy assault against Microsoft, drafting an antitrust complaint to the Justice Department that forced Microsoft to make changes to its new Vista operating system.

“I’ve never seen a tech company ramp up faster than they have in the last year or two,” tech lobbyist Ralph Hellmann told the Mercury News. “They’re using all the tools in the lobbying tool kit.”

Indeed, earlier this week, Google announced the official launch of its “Public Policy Blog,” a mouthpiece for its views on government and politics. “We’re seeking to do public-policy advocacy in a Googley way,” Andrew McLaughlin, director of public policy and government affairs at Google, explained. “Yes, we’re a multinational corporation that argues for our positions before officials, legislators and opinion leaders. At the same time, we want our users to be part of the effort, to know what we’re saying and why, and to help us refine and improve our policy positions and advocacy strategies. With input and ideas from our users, we’ll surely do a better job of fighting for our common interests.”

And remember, “Don’t be evil” isn’t just a motto, it’s a way of life, right?

“Google is not a conventional company,” company founders Larry Page and Sergey Brin said when they announced Google’s Dutch auction IPO a few years back. “We do not intend to become one.” Except when it comes to wielding power in Washington. Then it’s politics as usual. And that’s the way it’s got to be, apparently.

“Like Microsoft and other companies before it, Google has decided it will have to start playing the Washington game,” Cato Institute Executive Vice President David Boaz wrote last year. “It has opened a Washington office and hired well-connected lobbyists. One of the country’s top executive search firms is looking for a political director for the company.

“What should concern us here is how the government lured Google into the political sector of the economy. For most of a decade the company went about its business, developing software, creating a search engine better than any of us could have dreamed, and innocently making money. Then, as its size and wealth drew the attention of competitors, antibusiness activists, and politicians, it was forced to start spending some of its money and brainpower fending off political attacks. It’s the same process Microsoft went through a few years earlier, when it faced the same sorts of attacks. Now Microsoft is part of the Washington establishment, with more than $9 million in lobbying expenditures last year.

“… And that’s what the parasite economy is costing America. The founders of Microsoft and Google and other innovative companies are going to waste their brains on protecting their companies rather than thinking up new products and new ways to deliver them.

“Google’s new presence in Washington is entirely understandable, but it is a tragic symbol of the diversion of America’s productive resources into the unproductive world of political predation and the struggle to resist it.”