Canadian advertisers are calling on the government to prevent a proposed Google-Yahoo search partnership, which according to the trade group will potentially destroy competition and drive up online ad prices.
The Association of Canadian Advertisers (ACA), which represents more that 200 national advertisers such as A&P Canada, Bell Canada, Coca Cola Ltd., GM Canada, the Ontario Lotto and Gaming Corp. and other private companies and government agencies, said it will be meeting next week with officials of the Competition Bureau in Ottawa.
Late last month, the Competition Bureau announced it was launching an investigation into the partnership of the two giant search engine firms and how it might affect the Canadian search market.
“We will suggest to the Bureau that this partnership not be allowed to go through or operate as such in Canada,” said Bob Reaume, vice-president of policy and research for the ACA.
“…the partnership is not going to be good. It will restrict competition and create a potential monopoly for Google,” he added.
Reaume said the partnership will receive a “go signal” if it is found not to be in violation of U.S. anti-trust laws.
“Google is a great company with a very sound technology. It has been good to the advertising industry, but this deal with give it a stranglehold on the search market,” he warned.
The ACA executive said some surveys in the U.S. have estimated that keyword ads prices alone could go up by as much as 22 per cent if the partnership is allowed to operate.
Canadian businesses and organizations spent more than $1.2 billion in online advertising last year. That figure is expected to rise by as much as 25 per cent and reach over $1.5 billion by the end of 2008, according to the Interactive Advertising Bureau of Canada (IAB), a country-wide organization of online marketers, publishers and practitioners.
There are several players in the search engine advertising market but large profits are typically split among big players such as Google, Yahoo, Microsoft and Ask.com, with Google enjoying the lion share, said Paula Gignac, president of the IAB.
“The problem is, when you reduce the number of search engine marketing interfaces you also reduce the negotiation strategy options of advertisers,” Gignac said.
She said industry experts who have examined the proposed terms of the deal, also seem to think that it sets the stage for Google to sell and serve display and possible instant messaging ads as well.
Gignac sees the move as part of Google’s long-stated desire to be a key provider of ad inventory across both offline and online media. “Google has made no secret of the fact that it is setting up to be an end-to-end ad inventory solutions provider — not just for the Web, but for magazines, radio, newspaper, classifieds, cable, and eventually, even broadcast TV.”
Early in June this year, Yahoo announced a deal with Google to run Google’s advertisements alongside Yahoo’s search results. The announcement was made just hours after Yahoo rejected an acquisition offer from Microsoft.
Yahoo said the four-year deal with Google is expected to generate US$250 million to $450 million in operating cash flow during its first 12 month and will represent annual revenues of $800 million for Yahoo. There will be an option to extend the deal for another six years.
The Canadian advertisers’ outcry mirrored a protest issued by the Association of National Advertisers (ANA) in the U.S.
The organization, which represents 400 companies that spend more than US$100 billion a year in advertising send a letter to the U.S. Department of Justice objecting to the proposed partnership.
“…a Google-Yahoo partnership will control 90 per cent of search advertising inventory,” Bob Liodice, ANA president and CEO wrote in a post on the organization’s Website.
He said the group has “concerns that the partnership will likely diminish competition, increase concentration of market power, limit choices currently available and potentially raise prices to advertise for high quality, affordable search advertising.”
Google and Yahoo however tried to allay these fears by saying market forces will continue to set ad prices.
“Numerous advertisers have recognized that this agreement will help them better match their ads to users’ interest and that ad prices will continue to be set by competitive auction,” said Adam Kovacevich, senior manager of global communications and public affairs for Google, in a statement.
He pointed out that some advertisers would rather obtain effective advertising rather than cheap ads that do not reach their intended audience.
“This agreement will clearly help advertisers reach Yahoo users more efficiently,” Kovacevich said.
“Yahoo remains steadfast in its belief that this deal – in which prices are determined by advertiser demand-driven auctions, and not by collaboration between Yahoo and Google – will strengthen Yahoo’s competitive position…” the statement said.