Canada's Competition Bureau has launched a review of a proposed search engine partnership between Yahoo Inc. and Google Inc. amid concerns the deal will lead to rising costs for Canadian companies that advertise online.
In July, the U.S. Department of Justice announced it was launching its own investigation into the deal - which would see ads from Google appear on Yahoo's search results pages - but some experts say the deal could have more serious implications for the Canadian market.
Google's stranglehold on Canada's search market is even tighter than its grip in the U.S., leading some analysts, and competitors such as Microsoft Corp., to claim that adding Yahoo to the mix will make the tech titan too strong in Canada, leaving it without a viable competitor and allowing it to charge more for the top ad slots on search results.
A spokeswoman for the Competition Bureau confirmed a review is under way and that the organization is co-ordinating its investigation with U.S. officials. She would not say how long the probe is expected to last, but noted: "We're always mindful of the parties' time frame."
Yahoo and Google plan to implement the partnership, which only applies to the U.S. and Canada, in October.
Google said it remains confident that the union will prove beneficial to competition, but declined to comment on the details of the process.
"We are continuing to have co-operative discussions with Canadian and U.S. authorities about this arrangement and voluntarily delayed implementation in order to give regulators time to understand the agreement," a Google spokeswoman said in an e-mail.
If the bureau were to determine that the deal violates the Competition Act, it could force the companies to alter the terms of the partnership or squash it altogether.
"It comes back to ROI [return on investment] on the marketing dollar for a Canadian advertiser," said Owen Sagness, vice-president of Microsoft Canada's online services group. "When one company has the pricing power that Google has, that's going to negatively impact the ROI equation for advertisers in Canada. We do expect that prices will go up."
Keyword prices on Yahoo could rise as much as 22 per cent if the company decides to pursue a "profit maximization strategy," according to a recent report from search engine marketing firm SearchIgnite.
In June, Google accounted for about 62 per cent of the U.S. search market, with Yahoo trailing at 20.5 per cent and Microsoft racking up less than 9 per cent, according to data from comScore Inc.
However, in Canada, Google's lead is even larger, with the company controlling nearly 80 per cent of the search market. Microsoft comes in at No. 2 with about 5 per cent, and Yahoo trails with less than 4 per cent.
Both Yahoo and Google are confident the deal will proceed, said Colin Gillis, senior technology analyst with Canaccord Adams in New York.
"It's likely that there are some competitors of Google - namely Microsoft - that would like to see this deal blocked. So there's an awful lot of lobbying going on," he said.
Google's motivation for the deal has less to do with economics and more to do with its desire to block any potential sale of Yahoo or its search assets to Microsoft. Google's Yahoo partnership was first announced on June 12, in the wake of the collapse of Microsoft's bid to acquire the search engine pioneer.
