Google cuts ties with the Yahoo deal

Google is letting Yahoo go it alone.

Bowing to federal regulators’ antitrust concerns, Google pulled the plug on a search-ad partnership with Yahoo that would have given the latter major new revenue.

“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, Google’s chief legal officer, said in a blog post Wednesday.

The 10-year deal would have placed Google ads on some Yahoo search results, and the companies would have shared resulting revenue. The deal would have let Yahoo show ads on pages where its own technology, called Panama, wasn’t able to provide results, the company said.

In some ways, the Justice Department’s decision was not terribly surprising. Over the past two or three weeks, federal antitrust regulators became increasingly wary of the agreement and, in particular, tested Google’s resolve to remain in the deal, according to sources. Over the past few weeks, the give-and-take of negotiations between the parties began to falter as government regulators became increasingly unyielding in their demands.

Regulators, at one point two or three weeks ago, told Google that if the government pursued a lawsuit to block the deal, it would consider adding a monopolization count against Google to the complaint, which in essence would allege the search giant of using monopoly power in a relevant market. Apparently that hit a nerve with the search giant, noted a source, and it became evident to regulators that Google’s resolve to fight a legal battle was wavering when faced with the prospect of a monopolist label and all the regulatory oversight that could come with it.

Now that Google has given Yahoo the boot, is Yahoo CEO Jerry Yang getting eager to make a deal? Yang appears to be leaving the door very much open for an old suitor: Microsoft.

During a moderated “conversation” at the Web 2.0 conference in San Francisco, Yang said late Wednesday, “To this day, I have to say that the best thing for Microsoft to do is to buy Yahoo. I don’t think that is a bad idea at all…”