Google and Yahoo are crafting their ad partnership to include defenses to an antitrust challenge, according to people close to both companies who spoke on condition of anonymity. Yahoo's own ads might continue to appear alongside Google's, and the arrangement might be limited in geography or in the number of search terms affected.
The deal probably also would have some type of open bidding so that any advertising company could place ads with Yahoo search results.
Even in the absence of such a deal, research firm EMarketer Inc. expects Google's ad revenue to grow by 32% this year, easily outpacing Microsoft's 22% increase and Yahoo's 8%. "Rarely does one company dominate a market so much," analyst David Hallerman said.
Although Microsoft and others complain in Washington that Google is getting too powerful, its control of the search advertising business won't guarantee success in other forms of Internet advertising.
EMarketer expects paid search to remain at about 40% of the overall market, with ads on Web video and mobile services increasing in importance.
"Google's a one-trick pony, though it's a really good trick," Jupiter's Card said.
Additionally, online advertising won't necessarily end up as the linchpin of the technology ecosystem.
Some analysts foresee a collision in computing over the Internet, with Microsoft wielding its lock on personal computers and Google bearing Web services. But others say that software isn't going to go away and that Google's forays into Net-based word processing and the like haven't drawn blood.
"Microsoft is first and foremost a software company, as opposed to an online advertising company," said analyst Jeff Donlon of Manning & Napier Advisors Inc., which has stakes in both Google and Microsoft. "Although much has been made of a growing link between the two, I believe the link is very untested."
Microsoft's managers "don't need to win in online advertising," he said.
Google's efforts to scuttle the Yahoo takeover might also have hurt the company's standing in Washington, where regulators already are concerned by its growing might.
"This has further solidified Google's commanding lead in the market," said the Center for Digital Democracy's Chester, who planned to ask regulators to block any Google-Yahoo deal. "There's no competitors now."
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joseph.menn@latimes.com
jim.puzzanghera@latimes.com
jessica.guynn@latimes.com
Menn reported from Los Angeles, Puzzanghera from Washington and Guynn from San Francisco.
