When Is a Market Not?

The recent history of antitrust — from Microsoft to PeopleSoft to Whole Foods — is one in which the conventional wisdom of how to define the “market” affected by mergers and other transactions is not infrequently dead wrong. Today’s big deal is Yahoo! establishing a test advertising outsourcing deal with Google. Many observers, including Microsoft’s General Counsel, have already opined that such a deal would be DOA, as it would add to the dominant firm in the “search advertising market.”

But is that really what’s going on here? I am not so sure. Search is only important as a vehicle by which web sites and portals aggregate users to sell to advertisers. It is also free to non-enterprise users. So a cogent argument can be made that Internet search is irrelevant except as an advertising tool and that Internet advertising is NOT the relevant market for this deal, because online advertising already is or shortly will be competitive with (in other words, a substitute for) traditional media advertising like radio, newspapers and magazines. And to limit Internet advertising to “search advertising,” but ignore the fact that it is AOL, Microsoft and Yahoo! who collectively have a significant advantage in non-search Internet advertising — which seems to account for a majority of all Internet advertising — on first blush suffers from that same old market defintion problem.

In fact, here’s what the Wall Street Journal had to say this morning:

Major brand advertisers are gearing up to move big chunks of money from traditional ads including TV commercials and glossy magazine spreads to online outlets such as video-sharing services and Web sites for women. Although online ads garnered only an estimated 7% of total U.S. advertising dollars last year, Internet companies believe the percentage will increase sharply as Americans ratchet up their daily use of the Web and advertisers gain confidence in the medium.

As an antitrust lawyer, that tells me the data to establish that Internet ads are a subset of a broader advertising market — one in which, almost by definition, Google is not a “dominant” or even large player — may be there. Now it’s up to the advocates, economists and enforcement officials to figure out the answer.

Disclaimer — I have provided analysis to stock brokers and market research analysts on the Microsoft-Yahoo! fight, but am not currently working as a lawyer for any party to or company interested in the potential transaction.