SAN FRANCISCO, AND WASHINGTON — Google Inc. tossed floundering Internet rival Yahoo Inc. a life preserver four months ago when the two companies agreed to a search advertising deal. But with federal regulators ready to challenge the plan on antitrust grounds, Google abruptly cut the rope Wednesday, setting Yahoo adrift again.
And, just as earlier this year, there's a familiar shark circling Yahoo in the water: Microsoft Corp.
Yahoo has shrinking options for a rescue that would help the 15-year-old company remain independent, and Chief Executive Jerry Yang's job is in trouble, analysts say. But Yahoo's stock rose as much as 11% Wednesday on speculation that Microsoft would make another bid for its search business. Shares closed up 57 cents, or 4%, at $13.92.
"The loss of the Google deal is going to cause cascading problems for Yahoo," said Sanford C. Bernstein analyst Jeffrey Lindsay. "It's hard to see how Jerry Yang survives it."
The Sunnyvale, Calif., company's hopes of boosting its annual revenue by $800 million through the Google partnership were torpedoed by the objections of Justice Department antitrust officials, who asserted that the deal would erode competition in the online advertising market.
"The arrangement likely would have denied consumers the benefits of competition: lower prices, better service and greater innovation," said Thomas O. Barnett, who oversees the department's antitrust division.
Speaking at the Web 2.0 Summit, a conference for Internet executives, in San Francisco on Wednesday night, Yang said he was disappointed in government regulators for not understanding the online advertising business, and in Google.
"It was disappointing to us that they didn't want to defend this deal," he said of the search giant.
Google had much less at stake in the deal than Yahoo. With one goal already accomplished -- staving off a Microsoft acquisition of Yahoo -- Google executives canceled the deal after the Justice Department told them it was headed to court to block it.
But Google, based in Mountain View, Calif., may not have emerged unscathed. The antitrust review and opposition to the Yahoo deal, stirred up by Microsoft, have led to a deep awareness -- and growing concern -- by regulators of Google's online dominance.
Rebecca Arbogast, an analyst with brokerage Stifel, Nicolaus & Co., said that scrutiny is not welcome, "just like one never wants to have an IRS audit, even if you haven't done anything wrong."
