Yahoo-Google Deal Scaled Back: What's the Point?

Sam Gustin writes: Now that Yahoo and Google have significantly scaled back the parameters of their controversial search ad pact in a bid to win regulatory approval, it's worth asking: What's the point?

In their quest to win approval, the two companies risk denuding the agreement so much that its loses its potency to materially change Yahoo's fortunes. In its reduced form, the deal doesn't come close to addressing the fundamental issues of management and strategy that have been haunting Yahoo.

"This sweetens the deal to go through antitrust red flags and gives (Yahoo CEO) Jerry (Yang) some breathing space, but how much money it would add to Yahoo's top line would be very crucial," Mukul Krishna, digital media global director at consulting firm Frost and Sullivan, told Reuters. Krishna called the revised pact "more of a Band-Aid than the extensive surgery that is needed" for Yahoo.

From the outset, the proposed pact faced an uphill battle.

Many observers found it hard to believe that antitrust authorities would sign off on a deal that would give Google -- the overwhelming leader in Web search -- even more market power. Not surprisingly, the pact has faced stiff resistance from a number of advertising industry groups, as well as lawmakers.

Now, in an apparent last ditch attempt to to win approval for the deal, Yahoo and Google have sent the Justice Department a significantly scaled-down version of their proposal, in an effort to appease regulators' antitrust concerns, according to the Wall Street Journal:

The new plan, which the companies submitted over the weekend, shortens the original agreement to two years from ten years and caps the revenue Yahoo can generate from the deal to 25% of Yahoo's search revenue, according to these people. Previously, there was no revenue cap. It also specifies that Google advertisers can opt out of having their ads displayed on Yahoo sites.

Yahoo had hoped the deal would boost its annual revenue by $800 million annually. Under the new deal, Yahoo would see a revenue bump of approximately half that.

A prominent critic of the deal -- Robert D. Liodice, president of the Association of National Advertisers -- said the concessions would not assuage his concerns. "If a deal can't survive long-term scrutiny, what's the benefit of allowing it for the short term?" Liodice told the New York Times.

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Laura Rich is a co-founder of Recessionwire, which provides news, advice, perspective and humor about the recession and the recovery.