Google pipes up to defend search advertising deal with Yahoo

Firm's chief economist contends deal will provide better results at auctioned prices

Google Tuesday ramped up its defense of a proposed search advertising deal with Yahoo by moving to debunk the assertions of some critics that the joint effort will boost the cost of advertising.

Hal Varian, Google's chief economist, took aim at what he called "misconceptions" about the deal in a blog item posted on the company's Web site Tuesday.

The post comes a week after the Google-Yahoo deal came under fire from major advertising groups, and the US Justice Department hired a top litigator to look into a possible antitrust violations. On Monday, the European Union confirmed that it has launched a preliminary investigation into the antitrust implications of the deal.

Google had been quiet about the criticism until Tuesday's blog post by Varian, who takes issue with July report from SearchIgnite, a maker of search optimization tools, that said the deal could boost keyword advertising prices on Yahoo by 22 percent. Varian contended that the SearchIgnite report has been fueling misconceptions about the Google-Yahoo deal.

Varian said that advertisers will get better performance for their advertising dollars at "prices that reflect that improved performance," he noted. "The report fails to acknowledge that ad prices are not set by Yahoo or Google, but by advertisers themselves, through the auction process. Since advertisers set prices themselves via an auction, the prices must ultimately reflect advertiser values. That process will remain completely unchanged by our agreement."

He went on to note that under the agreement Yahoo won't be able to see the current auction prices of Google ads and vice versa. The SearchIgnite report had claimed that Yahoo will be able to see whose prices are higher for any keyword.

Varian also said that the report mistakenly focused on cost-per-click rather than the ROI for what companies spend on advertising.

"One of the reasons Google's ad system has performed so well for advertisers is that our ads tend to be highly relevant to user queries, which makes it more likely that a user will click on an ad and purchase the advertiser's product," he noted. "We have found that advertisers are generally willing to pay more per click so long as those clicks result in more sales. We anticipate that our agreement with Yahoo will bring more relevant ads to Yahoo users -- which is better for both advertisers and users."

John Timmer, a blogger at Ars Technica, noted that Google is "obviously anxious for the opportunity to serve its ads through Yahoo's high-traffic sites" and doesn't want the deal to crumble because of antitrust scrutiny.

Timmer noted that while it isn't surprising that Varian took issue with a report developed by a marketing company heavily involved in the industry, he questions why Varian bothered picking apart the study at all.

"A quick search using Google News itself reveals that SearchIgnite appears only four times, and only one of these stories is actually relevant to the Yahoo deal," he went on to note. "The obvious explanation for it is a hypersensitivity to anything that puts the advertising deal with Yahoo in a negative light at a time where government regulators are threatening to scuttle it."

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