Google may quit Yahoo venture

Google Inc. is considering dropping its proposed Internet-search advertising venture with Yahoo Inc. because it is reluctant to accept restrictions to avert a possible court challenge by US antitrust officials, people say.

A collapse of the planned venture between the two biggest online advertising companies would deprive Yahoo of as much as $450 million in operating cash flow over a year. Microsoft Corp. offered as much as $47.5 billion to buy Yahoo earlier this year.

Google is pondering pulling out of the agreement with Yahoo because it doesn't want to accept conditions the government may require to avoid harm to competition in the market for online advertising based on Internet searches, said sources with knowledge of company executives' thinking.

Google may have thwarted an acquisition of Yahoo by Microsoft simply by tying up the company in a lengthy Justice Department review, said Rebecca Arbogast, an analyst for Stifel Nicolaus & Co. in Washington.

"This kept Yahoo out of the arms of Microsoft for a good long time," Arbogast said. "That is a very good, practical outcome from [Google's] point of view. Given further shrinking and problems at Yahoo, it could be that they kept Yahoo out of Microsoft's arms forever."

Google dropped 33 cents to close at $359.36 in Nasdaq Stock Market trading. Yahoo fell 11 cents to $12.82.

Adam Kovacevich, a Google spokesman, declined to comment, saying "we are still talking" with the Justice Department. Yahoo spokeswoman Tracy Schmaler said in an e-mailed statement that "discussions are ongoing" with the government.

"We believe strongly that this agreement will strengthen Yahoo's competitive position in online advertising and will help to drive a more robust, higher quality Yahoo marketplace for our advertisers, publishers and users," Schmaler said.

Earlier this month, Yahoo and Google said they had agreed to a "brief" delay in the start of the venture to give US antitrust enforcers more time to study it.

The sources said Google must decide whether the joint venture still would make sense if, for instance, the company agreed to limit the number of ads that it places on the Yahoo site.

Another condition might be to give advertisers the ability to opt out of the ad-sharing if they don't want to bid in an auction for the right to place ads on Google and Yahoo Internet search pages, the people said.