In June 2008 Google proposed Yahoo for an advertising partnership which would result in competitive search engine, for the betterment of the internet. But on Wednesday, 5th November2008, the partnership broke even before starting.

The government antitrust regulators left Yahoo high and dry after they made it clear that they (Yahoo) should come up with a new growth plan. The agreement also forces Google squarely in the sight of the regulators which will have great affect in the ambitious growth of Google’s expansion.

According to Google and Yahoo, the deal was designed in such a way that it would not affect or reduce the competitors from the market of Web Search Advertising. The deal stated the Google would be able to place its ads along side Yahoo’s Search results. Shortly after, Google said it would walk away from the agreement. Regulators had been investigating the deal since June, and  was objected by Microsoft and many large advertisers.

The Justice Department said;

Yahoo’s ad system generates less profit from each search than Google’s.  It feared that the agreement would reduce Yahoo’s incentives to invest in its own search advertising business and opt instead of surrendering a larger portion of the search advertising market to Google.

But on the other hand Jerry Yang, Yahoo’s chief executive, said in San Francisco:

The deal was supposed to bring Yahoo $250 million to $450 million in additional cash flow in the first year.

Many analysts and investors have suggested that without the deal, Yahoo would be forced to consider one of two options: a deal with Microsoft or a merger with AOL. Yahoo and AOL, whose business has declined in recent months, have discussed a merger for months. Rumors have indicated a deal between Yahoo and  Microsoft was imminent, but people close to both companies said that there were currently no talks between them.

Courtesy : The New York Times