Google offered its rival Yahoo a marriage of convenience this past summer: an advertising partnership that would have given Yahoo an alternative to selling all or part of itself to Microsoft.
That proposed marriage fell apart Wednesday in the face of opposition from government antitrust regulators, leaving a jilted Yahoo under growing pressure to devise a new plan for growth.
The agreement also thrust Google, which dominates the most lucrative business on the Internet, squarely into the sights of regulators. That could force the company to rein in its ambitious goals for expansion.
“It puts Google on notice,” said David Yoffie, a professor at the Harvard Business School. “But it does not necessarily have serious implications today. If there is a pattern of government interventions in Google deals, there are negative implications.”
The U.S. Justice Department notified Google and Yahoo early Wednesday that it was planning to file suit to block the deal, which called for Google to place ads alongside some of Yahoo’s search results. Shortly afterward, Google said it would walk away from the agreement. Regulators had been investigating the deal since June, and it was opposed by Microsoft and several large advertisers.
“Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners,” David Drummond, Google’s chief legal officer, wrote on the company’s blog. “That wouldn’t have been in the long-term interests of Google or our users, so we have decided to end the agreement.”
Google and Yahoo had insisted that they devised the deal to ensure that it would not reduce competition in the market for Web search advertising. Last weekend, the companies proposed to limit the scope of the agreement substantially in a last-minute attempt to salvage it, but even that proved insufficient.
“The arrangement likely would have denied consumers the benefits of competition — lower…