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Testing Google-Yahoo's claimed "efficiencies"
Submitted by Scott Cleland on Wed, 2008-10-15 16:10
Most of Google and Yahoo's defense of their ad agreement has been to claim it creates 'efficiencies.' The problem with that defense is that most all of the claimed "efficiencies' -- are negative in nature -- not positive justifications for approval.
New Negative Network Effect:
- The essence or core activity of the proposed ad agreement is removing Yahoo search queries from the Yahoo monetization engine and running them through the Google monetization engine.
- Less queries drains Yahoo's Panama engine of what it needs to get better and produce more "relevant" targeted advertising -- so the more queries diverted away means less and less Yahoo Panama monetization efficiency.
- In other words, Yahoo gets paid a market-premium by Google for suffering competitive dis-economies of scale -- for the benefit of the ad partnership.
- On the other hand the more search queries to Google increases Google's monetization efficiencies and network effects -- effectively enabling Google to efficiently and anti-competitively widen its lead over all its competitors.
- In other words, Google trades sharing revenue with its partner Yahoo -- for economies of scale and network effects which increase Google's pricing power.
Cartel/Monopoly revenue efficiencies:
- The core activity of shifting search queries from Yahoo to Google creates revenue 'efficiencies' -- in that it generates higher average prices from advertisers.
- While this ad partnership is clearly more revenue efficient than competition, the efficiences redound only to Google and Yahoo and not customers.
- Thus these are classic cartel or monopoly efficiencies -- anti-competitive efficiencies -- not competitive efficiencies.
Stock Price efficiencies:
- The core purported benefit of the Google-Yahoo deal for Yahoo is faster growth and increased cash flow to increase Yahoo's stock price.
- Customers or users get little benefit from a higher Yahoo stock price.
- The loud signal this deal sends to customers of Google and Yahoo is that Google is more efficient than Yahoo -- so customers should just use Google.
- As customers realize that they can't enjoy a competitive efficiency of a lower price on Yahoo and that they are sending their advertising dollars to Google regardless -- customers will effectivley be encouraged to efficiently cut out the redundant middleman overhead of Yahoo and take their business directly to Google.
- The perception of efficiencies is the reality of efficiencies.
Google-Yahoo does in fact create efficiencies. Unfortunately they are mostly all anti-competitive cartel/monopolization efficiencies and not competition efficiencies that benefit customers.