Microsoft Yahoo Partnership OK'd By DOJMicrosoft Yahoo Partnership OK'd By DOJ

The U.S. Department of Justice said it approved Microsoft's online advertising partnership with Yahoo in part because the alliance provides an essential counterweight to Google's growing dominance of the Internet search ad market.

"The proposed transaction will combine the back-end search and paid search advertising of both parties," the DOJ said in a statement Thursday.

"U.S. market participants express support for the transaction and believe that combining the parties' technology would be likely to increase competition by creating a more viable competitive alternative to Google, the firm that now dominates these markets," said the DOJ.

"Most customers view Google as posing the most significant competitive constraint on both Microsoft and Yahoo, and the competitive focus of Microsoft and Yahoo is predominately on Google and not on each other," the agency added.

There's little question Google dominates the Internet search market, particularly in the U.S.—where it currently owns a 65.4% market share, according to Comscore's February numbers. Second ranked Yahoo holds a 17% share, while Microsoft is a distant third with an 11.3% stake.

Along with the DOJ, Europe's main antitrust body, the European Commission, gave thumbs up to Microsoft's search alliance with Yahoo earlier this week, paving the way for the companies to fully implement the agreement.

"Although we are just at the beginning of this process, we have reached an exciting milestone," said Microsoft CEO Steve Ballmer, in a statement. "I believe that together, Microsoft and Yahoo will promote more choice, better value and greater innovation to our customers as well as to advertisers and publishers," said Ballmer.

Microsoft and Yahoo unveiled their wide ranging search alliance on July 29, 2009 following months of on-again, off-again negotiations. The pact calls for Microsoft's Bing technology to power queries on all of Yahoo's Web properties, while Yahoo assumes broad sales responsibilities for its own, and Microsoft's, Internet platforms.

Microsoft's AdCenter platform will serve as a self-service search advertising tool for both companies. The deal does not extend to Internet display advertising. Yahoo, meanwhile, will continue to "own" the overall user experience on its search pages, though Bing will carry out the actual queries.

Microsoft will compensate Yahoo for traffic from Yahoo's sites under a revenue sharing formula under which Yahoo will retain 88% of the search revenue generated on its pages for the first five years of the deal.

Yahoo has said it expects the arrangement to add $500 million to annual operating income and $275 million to cash flow while cutting capital expenses by $200 million.

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