21 September 2009

Christine Varney
Assistant Attorney General
Antitrust Division
U. S. Department of Justice
950 Pennsylvania Avenue NW
Washington, DC 20530

Dear Ms. Varney:

As representatives of four leading nonprofit consumer and privacy organizations, we respectfully urge you to conduct a thorough and rigorous examination of the proposed 10-year agreement between Microsoft and Yahoo, as announced by the two companies on 29 July 2009. Because Microsoft and Yahoo have historically operated competing ad-targeting businesses in search, display and mobile advertising, as well as competitive ad exchanges (AdECN and Right Media, where consumer profile data are bought and sold at will) and corresponding advertising research and development efforts, we believe there are significant antitrust concerns.^[1] The proposed combination of Microsoft’s and Yahoo’s search platforms effectively undermines the latter as a meaningful competitor in the online ad sector, as it gives up its ability to offer marketers a robust search and display combination.^[2]

In the course of the Antitrust Division’s review of this agreement there are number of important questions that must be addressed. Is the current agreement, for example, simply a precursor to the eventual absorption by Microsoft of Yahoo’s various advertising holdings (including search and display marketing, ad exchanges, mobile campaigns, and interactive advertising research and development)? Given the combination and integration of two powerful sets of data-collection, profiling, and targeting technologies, will this proposed entity be able to unfairly leverage its online ad apparatus to place competitors at a disadvantage? How will the transaction impact the operation of Yahoo’s Newspaper Consortium, which now serves as a revenue source for the beleaguered newspaper industry?^[3] The specter of a joint Yahoo and Microsoft-operated Consortium must be evaluated as well for its potential impact on other online publishers. We also urge the DoJ to closely examine how a combined Microsoft/Yahoo search service will affect the mobile advertising market (with Microsoft now providing search services for Verizon and Yahoo’s work with AT&T, for example).^[4] Finally, we urge the DoJ to include in its analysis how such recent agreements as the new collaboration between Microsoft and ad giant Publicis (including the conditions made as part of its proposed sale of digital ad agency Razorfish to Publicis) for online advertising services may contribute to competitive concerns.^[5]

The collection and control of consumer data, combined with the ability to track and target over vast and multiple interactive platforms, is the key competitive advantage in the digital advertising industry. Both Microsoft and Yahoo have created elaborate data collection services across various platforms and applications, including sophisticated behavioral targeting systems that raise profound competitive and privacy concerns.^[6] We urge the DoJ to work closely with the Federal Trade Commission so that agency can address the consumer privacy issues raised by this proposed deal.

As you so wisely observed in a speech to the United States Chamber of Commerce earlier this year (“Vigorous Antitrust Enforcement in this Challenging Era”), “The question on every American's mind is: ‘What can the Government do to help ease consumers' burden in these troubled economic times?’” In order to ensure that American consumers and competitors are given the 21^st Century safeguards they require, both the DoJ and FTC must carefully examine how the proposed Microsoft/Yahoo agreement will impact the digital marketplace.

We will contact you soon so we can discuss these matters with you and your colleagues.

Cordially,

Center for Digital Democracy
Consumer Action
Consumer Watchdog
U.S. PIRG

cc: FTC Chairman Jon Leibowitz, Commisioner Pamela Jones Harbour, Commissioner William E. Kovacic, Commissioner J. Thomas Rosch

Chairman Herb Kohl, Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights.

Sen. Orrin G. Hatch. Ranking Member

^[1] AdECN Exchange,”Resources,” http://www.adecn.com/resources.html; Right Media Exchange, “Right Media 101,” http://www.rightmedia.com/right-media-101/; Microsoft adCenter Labs, “adCenter Labs—Innovations in Digital Advertising,” http://adlab.microsoft.com/; Yahoo! Labs Bangalore, “Welcome to Yahoo! Labs Bangalore,” http://bangalore.yahoo.com/labs/; Microsoft Advertising, “Search Advertising,” http://advertising.microsoft.com/search-advertising; Barry Schwartz, “Yahoo Search Marketing Adds Enhanced Targeting Features,” Search Engine Land, 16 Mar 2009, http://searchengineland.com/yahoo-search-marketing-adds-enhanced-targeting-features-16874 (all viewed 16 Sept. 2009).

^[2] Microsoft Advertising, “The Combined Impact of Search and Display—Online Research from Microsoft Advertising Institute,” 15 Dec. 2007, http://advertising.microsoft.com/research/search-display-impact; Yahoo! “Using Display Advertising and Search Marketing,” http://help.yahoo.com/l/us/yahoo/ysm/mda/basics/ymda_ysm.html; Abe Mezrich, “Search and Display: Perfect Together,” Yahoo! Search Marketing Blog, 3 Dec. 2007, http://www.ysmblog.com/blog/2007/12/03/search-and-display-perfect-together/; Microsoft Advertising, “Search and Display: Better Together,” 16 June 2008, http://advertising.microsoft.com/research/search-display-mix (all viewed 16 Sept. 2009).

^[3] On 8 September, Microsoft sent us the following response to the question we asked about the future of the Yahoo newspaper consortium: How may this deal affect the Yahoo! Newspaper Consortium?

The partnership Yahoo! has with the newspapers is broad and includes everything from content distribution, advertising cross sales, and technology platform development, to the display of Y! sponsored search listings on the newspapers’ own Web sites. Yahoo! does not see the Microsoft deal as having an immediate impact on its newspaper consortium dealings. However, by combining its platform with Microsoft's, Yahoo! and Microsoft will be in a position to offer the Newspaper Consortium and other web publishers more competitive bids for search syndication deals than either company can offer separately.

^[4] Microsoft, “Verizon Wireless Selects Microsoft for Mobile Search and Advertising,” 7 Jan. 2009, http://www.microsoft.com/Presspass/press/2009/jan09/01-07VerizonSearchPR.mspx; Jamie Wells, “Microsoft Launches Behavioral Targeting for Mobile,” Microsoft Advertising Blog, 16 Sept. 2009, http://community.microsoftadvertising.com/blogs/analytics/archive/2009/09/16/microsoft-launches-behavioral-targeting-for-mobile.aspx; Yahoo! Mobile Ad Services, “Your Consumer is on the Move. Are You Standing Still?” http://mobile.yahoo.com/business/advertiser; Yahoo! “AT&T Launches Yahoo! oneSearch,” 8 Sept. 2008, http://yhoo.client.shareholder.com/press/releasedetail-mobile.cfm?ReleaseID=332963 (all viewed 16 Sept. 2009).

^[5] Brian Morrissey, “Publicis to Buy Razorfish From Microsoft,” AdWeek, 9 Aug. 2009, http://www.adweek.com/aw/content_display/news/agency/e3i0cdf40bc01587c4115cf19d1e51046ac (viewed 16 Sept. 2009); “Microsoft, Publicis Launch Digital Advertising Agreement,” Wall Street Journal, 25 June 2009, http://online.wsj.com/article/BT-CO-20090625-709998.html (subscription required).

^[6] Microsoft Advertising, “Ad Solutions,” http://advertising.microsoft.com/ad-solutions; Yahoo! “APT from Yahoo!” http://apt.yahoo.com/ (both viewed 16 Sept. 2009).