All Things Digital

An afternoon with the chairman of the Senate Judiciary Committee’s Antitrust Subcommittee. What a miserable way to celebrate a special occasion.

Yet that’s exactly how Jerry Yang marked his one-year anniversary as CEO of Yahoo (YHOO). Yesterday Yang paid a visit to Capitol Hill in the hopes of tempering antitrust concerns over the Internet company’s proposed search-advertising pact with rival Google (GOOG).

During his one-day visit, Yang met with Sen. Herb Kohl (D., Wisc.), who chairs the antitrust subcommittee and has raised concerns about the long-term implications of Yahoo’s proposed deal with Google. Yahoo maintains its venture with Google won’t have an anticompetitive impact on the online-search market because it involves only a portion of Yahoo’s search business. But others (read: Microsoft [MSFT]) disagree and argue it’s the beginning of a process that will end with Yahoo outsourcing all of that business to Google and consolidating, oh say … 90% of the search-advertising market in the search sovereign’s hands.

“On the surface, it may be a compelling argument,” Rebecca Arbogast, an analyst at Stifel Nicolaus, said of Yahoo’s claim that the deal is benign. But she added: “Over time, what this is doing is setting up a trajectory where [advertisers] move over to Google and they become the only game in town.”

Desperate times call for desperate measures. And lest there be any doubt that Yahoo’s (YHOO) exploratory search-outsourcing alliance with Google (GOOG) is just that, consider this: Yahoo opposed such a partnership on Jan. 30–the day before Microsoft (MSFT) announced its bid for the company.

According to documents unsealed yesterday as part of a shareholder complaint against Yahoo, the company’s leadership felt an outsourcing deal with Google would be detrimental to Yahoo’s long-term push to become a “must buy” for advertisers.

These documents, prepared for a Jan. 30 all-hands meeting, anticipated the question of whether Yahoo would consider outsourcing search to Google. “We are focused on long-term value creation rather than short-term gains,” Yahoo said in response, adding that such a deal “may not take into account the longer-term impact on the competitive market if search becomes an effective monopoly.”

Sadly, Yahoo forgot to add a very important caveat to this statement: “When you’re not facing a hostile buyout offer from Microsoft.” Because when you are, concerns about long-term value creation and harm to the competitive market apparently cease to be an issue.

Can a search-advertising alliance between Yahoo and Google possibly pass regulatory muster? We may soon find out.

Now that investor-tormentor Carl Icahn has filed a proxy slate to unseat Yahoo’s board with the intent, one way or another, to push the company back into merger negotiations with Microsoft (MSFT), an obviously panicked Yahoo (YHOO) is scrambling to pull together a search-ad deal with Google (GOOG).

The possibility of a search-ad outsourcing arrangement between the two companies was, in part, what caused Microsoft to lose its appetite for Yahoo. Could it cause Icahn to lose his as well? Seems doubtful. Even if, as sources close to the situation tell the New York Post, the deal is the sort of open-to-all-comers arrangement Yahoo and Google hope would pass regulatory scrutiny. Under its terms, a real-time auction system would be used to select the most lucrative ads for a given search query from among those sold by Yahoo, Google or anyone else that cares to participate. Structured in this way, the deal might not, as Microsoft has claimed in the past, consolidate over 90% of the search-advertising market in Google’s hands and draw the ire of antitrust regulators.

Instead it might consolidate, oh say … 89.99% in the search sovereign’s hands. Said Kevin Lee, chairman of search engine marketing firm Did-It, “Given the way the ecosystem is put together now, Google would probably be the winner in a vast majority of cases.”

Boy, that was fast. Yahoo’s (YHOO) limited two-week test of Google’s (GOOG) AdSense for Search service has yielded wondrous results. So wondrous, in fact, that we’re only a week into it and “people familiar with the matter” are already telling The Wall Street Journal that the trial may well lead to a broader outsourcing deal between the two companies.

Five bucks and a Yahoo Insta-Yodel! says the Net portal’s having another sit-down with Microsoft this week.

Anyway, by some estimates, a deal with Google would increase Yahoo’s cash flow by more than $1 billion a year. A nice little spike in revenue like that would certainly bolster Yahoo’s efforts to spur Microsoft (MSFT) into increasing its unsolicited buyout bid for the Internet pioneer. That being the case, why didn’t Yahoo forge such a partnership with Google last July when it was restructuring the company’s “ecosystem” and slaughtering sacred cows? Perhaps government approval was a concern?

Well this ought to cause a chair-tossing tantrum or two up at Microsoft HQ. This afternoon Yahoo (YHOO), which has been searching for alternatives to Microsoft’s (MSFT) unsolicited $44.6 billion acquisition offer, said it will explore a search-advertising partnership with its greatest rival–Google (GOOG).

The Internet portal will soon begin a “limited” two-week test of Google AdSense with an eye toward a broader search-ad outsourcing arrangement. That said, this tentative first step is by no means a harbinger of a larger deal. “… The testing does not necessarily mean that Yahoo will join the AdSense for Search program or that any further commercial relationship with Google will result,” Yahoo said in a statement.

It certainly doesn’t. Not if Microsoft has anything to say about it. In a hastily issued statement Brad Smith, Microsoft’s general counsel, cried monopoly over the exploratory alliance.”Any definitive agreement between Yahoo! and Google would consolidate over 90 percent of the search advertising market in Google’s hands,” Smith said. “This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo! We will assess closely all of our options. Our proposal remains the only alternative put forward that offers Yahoo! shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers.”

Our goal is clearly not to find a qualified and interested U.S. worker. And that, in a sense, sounds funny, but it’s what we are trying to do here.”

–Attorney Lawrence Lebowitz on hiring foreign workers under the U.S. government’s Program Electronic Review Management process

How do you say “tech’s best and brightest” in Hindi? Because increasingly, India seems to be a prime source for tech-industry talent. In 2006, at least 65,000 H-1B visas were issued. And the number of L visas–which allow multinationals to transfer foreign managers and specialists within a company to U.S. offices–rose to more than 53,000.

That’s a hell of a lot of jobs. Too many, say Sens. Dick Durbin (D., Ill.) and Chuck Grassley (R., Iowa), who claim U.S. visa programs are being exploited to the detriment of American tech workers. Yesterday, Durbin and Grassley released data revealing that foreign outsourcing firms are among the heaviest users of both the H-1B and L visa programs. Of the top 20 L visa users in fiscal year 2006, 14 are offshore outsourcing firms. Among them, India-based Tata Consultancy Services, which received 4,887 L visas and 3,046 H-1B visas last year. The number of L visas here is particularly concerning, as Durbin notes: “The L visa is designed to give multinational companies the freedom to transfer managers and specialists within the company to their U.S. offices. But some of these companies have hundreds, and in some cases thousands, of L visa workers. I find it hard to believe that any one company has that many individuals that are legitimately being transferred within a single year.”

That does seem dubious. But, as the high-tech companies lobbying Congress for more visas note, Tata is one company of many. And if the U.S. isn’t careful and tweaks its visa program in the wrong way, it could see a lot of top talent leaving the states. “Simply put: It makes no sense to tell well-trained, highly skilled individuals–many of whom are educated at our top colleges and universities–that the United States does not welcome or value them,” Microsoft chairman Bill Gates said earlier this year. “For too many foreign students and professionals, however, our immigration policies send precisely this message.”