Google announced its decision a day after it was reported the search engine and Yahoo were willing to reduce the scope of the agreement to appease antitrust regulators. The ad deal would have placed Google in charge of search advertising on Yahoo in the United States and Canada, combining the world's first- and second-largest search engines. Yahoo had estimated the deal could bring in as much as $800 million. On Wednesday, however, Google acknowledged that government resistance, as well as opposition from advertisers, made the deal announced in June too risky to pursue. Regulators, advertisers, ad publishers, and some politicians have opposed the agreement, saying the partnership would lead to higher prices by dramatically reducing competition in search advertising and concentrating too much market power with Google.

"After four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement," David Drummond, chief legal officer for Google, said in the company's blog. "Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long-term interests of Google or our users, so we have decided to end the agreement."

Yahoo and Google had argued that the deal would have been good for publishers, advertisers, and users of the search engines, as well as the two companies, by allowing Yahoo to show more relevant ads for search queries that currently generate few or no advertisements. Yahoo, which fended off a takeover bid by Microsoft this year, is struggling to convince investors that it can continue to exist as an independent company, despite financial setbacks and plummeting stock prices.

On Wednesday, Yahoo looked to assure investors that the company would continue without Google.

"While the implementation of the services agreement with Google would have enabled Yahoo to accelerate its investments in its top business priorities through an infusion of additional operating cash flow, this deal was incremental to Yahoo's product road map and does not change Yahoo's commitment to innovation and growth in search," the company said in a statement.

The deal was set to begin in October, but Google and Yahoo delayed it to discuss the matter with the Justice Department. To appease regulators, the companies had reportedly offered to make the agreement last two years rather than 10 and to cap the amount of money it would generate for Yahoo to 25% of its search advertising revenue.

Source: www.informationweek.com