• by Wendy Davis , Staff Writer @wendyndavis, November 5, 2008

Not even last-minute concessions to limit the deal were able to save the Yahoo-Google search ad pact. The companies announced today that they would not go ahead with their agreement in the face of opposition by the Department of Justice.

For all the deals that the feds have approved, it's odd that this was the one that was scuttled. Search is just one portion of the online ad marketplace and, even if Google and Yahoo together make up around 80% of that market, the deal only called for Google to power a small portion of Yahoo's search ads. In their most recent rumored concessions, they had agreed that Google ads would account for no more than 25% of Yahoo's search revenue.

Undoubtedly, some search marketers are relieved today. They seemed to fear that a Google-Yahoo deal would lead to higher search costs, though that always sounded more like anxiety about the unknown than a rational fear.

The DOJ said in a statement this morning that the deal would have squelched Yahoo's incentive to continue to compete in search. "Had the companies implemented their arrangement, Yahoo's competition likely would have been blunted immediately with respect to the search pages that Yahoo chose to fill with ads sold by Google rather than its own ads, and Yahoo would have had significantly reduced incentives to invest in areas of its search advertising business where outsourcing ads to Google made financial sense for Yahoo," the DOJ said.

With all due respect to the DOJ, the government's antitrust lawyers aren't in any position to know what was in the mind of Yahoo executives, who repeatedly said that the company intended to continue to compete in search.

Now, Microsoft looks certain to try to make a play for Yahoo's search business again. And if that happens, there's really no question that Yahoo -- which, for all its faults, built a more competitive search engine than Microsoft did -- will no longer challenge Google in search.