While Microsoft COO Kevin Turner did a kind of modified cheerleading act at Microsoft’s annual Financial Analyst Meeting, Entertainment and Devices President Robbie Bach played the teenage boy and Chief Research and Strategy Officer Craig Mundie the voice from the future.

During his presentation at the event at the Microsoft (MSFT) HQ in Redmond, Wash.–a series of presentations for Wall Street analysts and the media–Bach showed off the Xbox’s new Project Natal motion-sensing technology, which lets you play games and more without a controller.

Bach spazzed out nicely playing a game called Ricochet, with a storm of virtual red balls coming at him, although I was slightly worried the exertion might cause him to collapse on stage.

Turner was on before Bach, pretty much doing cleanup after CEO Steve Ballmer’s presentation, talking up all of Microsoft’s various businesses, while talking down its competitors’.

Said Turner, whose mantra was building market share for Microsoft: “Strong innovation, strong innovation investment, as well as strong operational excellence that we’re driving to compete and grow our market share.”

Strong, got it? (Frankly, I know companies always put their best foot forward at events like this–but after Ballmer’s own He-Man speech, BoomTown is a little worried that Scary Microsoft could be making a comeback, after a few post-antitrust years of Kinder-Gentler Microsoft.)

Bach, given his job, was a lot more entertaining and had more to show off, although he could not be as positive about the software giant’s mobile experience, given the juggernaut of the iPhone from Apple (AAPL).

“First of all, in Windows Mobile, as Steve pointed out, we had a challenging year from a share perspective,” said Bach. “Much tougher competition in the U.S. and certainly there is plenty of competition in this space.”

No kidding!

Natal is, of course, the pretty one for Bach’s division.

“It is about technology innovation and experience innovation. I think it will lead to a bigger and better business as well,” said Bach. “It is certainly an opportunity for us to build something new.”

Mundie also showed a lot of new futuristic stuff, which borrowed from the Natal technology, including a demo of a gesture-rich “office of the future” experience.

Said Mundie: “But as far as Microsoft, one of the greatest opportunities going forward is to realize there will be a successor to the desktop. It is the room. It is the fixed computing environment. The question is what can you do with computing when you have a much more robust man-machine interaction model and you don’t have to fold it in half and move it and run it on a battery.”

In the midst of it, though, he chit-chatted with a very scary “digital assistant” named DAG (I think it must stand for Digital Assistant Golem) on the screen, whose voice freaked me out in the exact way HAL from “2001: A Space Odyssey” always does.

After helping Mundie with a bunch of stuff, I am guessing DAG went off into the computer to work on a secret plan to kill off the human race.

Well, it was nice being here for this long on our little blue planet, Earth!

So, while we wait for DAG to destroy us, here’s the video demoing Natal that Bach showed to the audience, which is not new, but still pretty cool:

With upward of two-thirds of the search market, depending on what survey you use, one would not imagine that Google would worry too much about any kind of hookup of Microsoft and Yahoo.

Think again.

While several sources at Google (GOOG), even off the record, have professed to me that they are not that worried about any search and online advertising deal the pair have finally struck, others admit that a more robust rival will force the company to compete and innovate more aggressively.

“We take nothing for granted, because anyone can make a comeback,” said one person at Google, who points to Microsoft’s laudable efforts with its Bing search service. “Especially with Microsoft’s deep pockets and Yahoo’s talent in the advertising market.”

Sources close to the situation said Google will likely try to keep a low profile at first in opposing the deal announced today, positing that regulators have the same opinion about fewer competitors in the market as they did when opposing a similar Google-Yahoo search deal last year.

“Is Google siccing the dogs on this deal?” asked one person familiar with Google’s thinking. “Or will it wait for regulators to cast scrutiny on a deal that drops the number of competitors from three to two?”

Still, having three in the market has not been enough to lift the share of Yahoo or Microsoft very much in comparison to Google over the last several years.

According to a comScore (SCOR) report for June, for example, even combined, Microsoft (MSFT) and Yahoo (YHOO) have a share that is less than half that enjoyed by Google.

Microsoft accounted for 8.4 percent of the search market in the month, with Yahoo clocking in at 20 percent. Google grabbed the lion’s share at 65 percent.

And that dominance means a financial windfall–as volume means more queries means better search ads means better relevance in an ever-virtuous and very lucrative cycle.

It is a cycle Google would like to keep intact, so much so that it made what turned out to be a very risky move to block Microsoft when it was trying to take over Yahoo last year.

Regulators ended up raising federal eyebrows about the proposed Yahoo-Google search deal, which was less sweeping than the Micosoft-Yahoo one announced today.

Google dumped Yahoo in the end–although not before the company found itself front and center on antitrust radar screens.

And there it has remained, with Christine Varney, assistant attorney general for the Antitrust Division of the United States Department of Justice, having become Google’s most pointed critic.

She should be, given the Silicon Valley-born Yahoogle idea was an appalling reach by Google, as I wrote last April:

And while it might be a long-cherished dream of Google’s to take over Yahoo search–and also get the chance to return to the scene of the crime, since Google got its first big push from doing Yahoo search, before Yahoo wised up too late–there is simply no way this will be allowed by regulators nor should it.

Still, you have to almost admire the chutzpah of the search giant in making this move, if the sheer and unadulterated arrogance of it wasn’t so distracting.

Because, while Google has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech (although all those beach bikes on its campus inexplicably creep me out a little bit), the company still cannot be allowed to have a monopolistic share of the market.

It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.

And no matter how many flashy moves Google and Yahoo make, it is flat-out wrong for one player to so dominate such an important sector.

Anti-competitiveness would likely be Google’s first arrow in what will surely be an attempt to slow down, if not block, the deal.

And while advertisers are more disposed to have a stronger No. 2 player to counter Google’s growing power, the company might use the opportunity to shave the sharp edges of its ever-scarier reputation.

In a conference call early this morning about their deal, Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer tried to paint a picture of Google as a scary and dominating search giant.

But, as Google will surely offer up, if Microsoft and Yahoo combined is the underdog, it might not look like so much of a bully after all.

Please see this disclosure related to me and Google.

BoomTown went down to Silicon Valley’s most exclusive country club–also known as Stanford University–where Microsoft CEO Steve Ballmer took to the stage today for a talk at Memorial Auditorium for the Entrepreneurial Thought Leaders Seminar.

4:32 pm PDT: Ballmer was pretty much on time, delivering a rousing hello and some good words about being back. He had attended Stanford Business School many moons ago, before dropping out and joining Microsoft (MSFT). Good move, I’d say.

He offered anyone in the room jobs, if they were smart, and then gave out his email. Although he did leave out the pertinent fact that the software giant just laid off 3,000 workers earlier this week.

Well, that.

Then, Ballmer launched into his speech, which began with him talking about the “tough economy.”

The slide behind him was a picture of a glass half-empty or half-full, depending on your attitude, with the notes:

Economic “Reset”

Optimistic about the future.

4:40 pm: Ballmer then told his “entrepreneurial” story. There was a lovely picture of the young Ballmer with some hair. Not much, but some.

Lots of chatter about old computers ensued. Zzzzzzzz.

The early days of Microsoft were next, including how founder Bill Gates was worried about how Ballmer would bankrupt the nascent company by hiring more staff, a delightful story the pair told at our D: All Things Digital conference last year.

4:46 pm: Then the “emerging technology trends.”

Which are, according to Ballmer: many-core processing; screens everywhere; natural UI; all content digital.

Like All Things Digital! I always knew Steve and I were soul mates!

Because it is Microsoft, he moved into “software-powered experiences,” which means, according to Ballmer’s slide: a rich client + cloud, spans multiple devices and is persistent and personal.

“You world needs to be brought together,” said Ballmer. “You may not want to manage the cacophony of devices you deal with today.”

I may not. Or I may. Ballmer, may I?

4:55 pm: It was not a long or much of a content-rich speech. Ballmer wrapped up with the idea that “The Time Is Now.”

He noted that it is a great time for start-ups, with “all the right ingredients” that “dream big.”

What ingredients? What dreams? Ballmer was not saying much about his secret cooking tips for baking a tech behemoth.

4:57 pm: Time for questions from the students.

The first was about whether big- or small-company experience is better.

Both, said Ballmer. Depending on the problem. “You want to blend those things pretty well,” he said.

It is all about the ingredients! And blending. Also sifting, in my humble opinion.

The next question was about the state of the browser business.

Ballmer said it will get more innovative. We’re waiting!

The next was about what the main problem typically is with companies that have trouble making it.

“Too many companies can actually hang on for almost too long because there has been too much money funding these ideas,” said Ballmer.

Yes, we are soul mates!

5:04 pm: The next question was about the culture of a company from its start and how Ballmer has shaped Microsoft’s culture.

“I would say I have shaped Microsoft culture a lot,” he said. “Sometimes for the better, sometimes worse.”

Ballmer compares himself and Gates to “parents” of Microsoft.

That was very Iowa of him.

(As I said: soul mates!)

5:09 pm: The next question was about how he decided to leave Stanford Business School.

“They still have a spot for me if I want to go back and finish my MBA,” Ballmer joked.

But, he noted, it was not much of a risk to leave school.

When Ballmer did waver about going back to school, Gates convinced him to stay. Thank goodness, as he said he would have become an investment banker or a consultant.

The next question was about Google (GOOG), which was not named, I suppose for fear that it would set Ballmer off and there would be chairs a-flying.

“The No. 1 player [in search] is a lot bigger than us,” said Ballmer. “We are like a start-up.”

Well, a really, really, really rich start-up, which has been sued by the federal government for antitrust violations, and convicted.

5:14 pm: The next question was about ideas he might have missed.

Ballmer called himself “a mini-venture capitalist,” noting that figuring out what investments to make is tough.

He joked about the disastrous Microsoft Bob product. That always gets a laugh.

The next question was about how much attention Microsoft will give to cloud computing.

It gave him the chance to make a pun using the movie, “Three Men and a Baby,” noting that the “future is about three screens and a cloud.”

Ahahahahahahaha! Okay, not at all.

A question was asked about taking risks and tips for dealing with it.

“Valuable experience is valuable experience,” said Ballmer.

Say what? Is that a word puzzle? This is starting to feel like “Angels & Demons.”

Ballmer advised the students to “love doing the work that you’re doing.”

It is apparently all about the love at Microsoft. Who knew?

5:22 pm:

Two questions about consolidation, which is code for Yahoo (YHOO).

“I’m glad we went down the road,” said Ballmer, waxing nostalgic about the failed takeover attempt.

But he added he still thought a partnership of some sort between the pair is a good idea. “There may or may not be appropriate discussions,” said Ballmer.

There may. Or may not. Carol, may Steve?

Then there is some love for competitors, Facebook, even Apple (AAPL) for the iPhone.

Feel the love!

5:25 pm: The last question is about what he wished he had done if he could do it over.

He would have taken more computer science courses.

We are so not soul mates.

The Microsoft antitrust trial seems like a distant memory, doesn’t it?

Not quite yet to the Justice Department, it seems, which asked the federal judge overseeing the 2002 settlement with federal and state regulators yesterday to extend her oversight of some of the judgment another 18 months.

The Justice Department said it wants that extended to make sure Microsoft fully complies with the requirement that technical documentation to licensees is crackerjack.

And Microsoft (MSFT) has agreed to be under the watch until May, 2011.

U.S. District Court Judge Colleen Kollar-Kotelly’s oversight of the software giant was supposed to run out this November. She must approve the extension.

Here’s the U.S. Department of Justice’s press release on the issue:

Justice Department Requests Extension of Microsoft Final Judgment

Microsoft Agrees to 18-Month Extension, Subject to Court Approval

WASHINGTON, April 16 /PRNewswire-USNewswire/–The Department of Justice told the U.S. District Court for the District of Columbia today that it is necessary to extend the term of certain portions of the Microsoft final judgment by at least 18 months. The Department said that an extension is necessary to ensure the quality of the technical documentation Microsoft provides to licensees.

The Department’s Antitrust Division made its views known today as part of its Joint Status Report to Judge Colleen Kollar-Kotelly of the U.S. District Court for the District of Columbia. The Antitrust Division enforces the final judgment in conjunction with antitrust enforcers from 17 states and the District of Columbia, which along with Microsoft joined in today’s filing with the court.

In 2006, Microsoft agreed to a two-year extension of the communications protocol licensing program contained in Section III.E of the final judgment, along with all of the final judgment’s enforcement provisions. Microsoft also agreed that the Department and state antitrust enforcement agencies may, at their discretion, apply to the court for an additional extension of all or part of the extended provisions of the final judgment for a period of up to three additional years, through November 2012. The United States is exercising its right under this provision to seek an extension of Section III.E and its supporting provisions through May 12, 2011. Without this action, the final judgment would have expired on Nov. 12, 2009.

Section III.E of the final judgment requires that Microsoft make available to competing server software developers, on reasonable and non-discriminatory terms, certain technology used by Microsoft to make its server operating systems interoperate with client PCs running the Windows operating system. Microsoft must provide licensees with technical documentation that is designed to enable them to use this technology in their own server products so that those products work better with Windows.

In past status reports, the Department reported to the court its concerns with the quality of the technical documentation Microsoft provides to licensees under this program and with the length of time it is taking Microsoft to improve that documentation.

The Department today also submitted the necessary papers to the court for its consideration.

Today, for interested lawyers, the American Bar Association is hosting a “brown bag” lunch and discussion in Washington, D.C. on the now-scuttled Google/Yahoo deal.

Ominously titled: THE GOOGLE/YAHOO! AGREEMENT AND ITS IMPLICATIONS FOR FUTURE ANTITRUST ENFORCEMENT IN ONLINE ADVERTISING, the event will be held at noon until 1:30 pm EST at the law offices of Cadwalader, Wickersham & Taft at 1201 F Street NW. (Cadwalader worked for Microsoft on its failed Yahoo bid, by the way.)

Still, the gathering could not come at a more perfect time, given that comScore’s 2008 Digital Year In Review report, released yesterday, showed the power of Google (GOOG) at an all-time high, no matter how much Yahoo-chasing, lawyer-rattling and lobbying Microsoft (MSFT) has done.

According to Digital Daily’s John Paczkowski:

“Google began the year claiming 58.5 percent of all search queries and ended it with 63.5 percent. Moreover, of the 137 billion search queries conducted in the states last year, 85 billion were handled by Google. That means Google claimed nearly 90 percent of the total growth in search query volume for the year.”

In addition, Google was ranked as the top U.S. Internet property for 2008 and its influence even outpaced Internet growth. The U.S. Internet population grew four percent in 2008, while Google sites, such as the flagship Google, YouTube and Blogger, grew 12 percent.

Yahoo (YHOO) and Microsoft have both lagged far behind in the search market.

BoomTown’s translation of those scary-Google stats: The Justice Department Lawyer–Antitrust Division–Employment Act of, say, 2015.

Here’s the description of the event, so those lawyers can be ready when that particular rapture–for Microsoft, at least–takes place:

When Google and Yahoo! abandoned their proposed agreement last November, the Justice Department issued a statement identifying relevant antitrust markets and addressing the likelihood of anticompetitive effects.

Recordings of this Brown Bag Program will be posted on the Section’s website Members Only area and are downloadable in an MP3 format, free of charge, at http://www.abanet.org/antitrust/at-bb/bb-audio.shtml.

With a new administration coming into power, it makes a lot of sense for Microsoft to launch its new “Microsoft on the Issues” blog this week.

Covering legal and policy issues, the opening post by Microsoft (MSFT) General Counsel Brad Smith noted:

Today we are launching ‘Microsoft on the Issues’ to open another, more direct line of communication that will enable us to quickly and succinctly provide our perspective on the pressing technology matters of the day. We do not want this to be a one-way conversation. We want to create a transparent dialogue with readers and stakeholders. We want to enhance our participation in discussions that propel policy-making at local, national and international levels.”

But, so far, with only two posts and few comments, it’s a tad dry–and, by that, I actually mean dull–and in desperate need of some spicy sauce to jazz up the joint.

Here are some modest BoomTown suggestions:

Never seen before behind-the-scenes photos of Microsoft honcho Bill Gates cracking wise with the legal team during the software giant’s antitrust trial in the late 1990s!

CEO Steve Ballmer’s personal ruminations in a “BOMB-er” blog on the dangers of Google (GOOG) dominance over search–the uncensored version!

A legal argument about how Yahoo (YHOO) CEO Jerry Yang should be declared incompetent for not taking Microsoft’s very, very, very generous offer. (Title: “Is It Something We Said?”)

Microsoft’s collection of the outtakes from the Jerry Seinfeld commercials, with a very special essay about the Constitutional right to be extremely weird.

No?

I guess, as Smith wrote, it will be a “wide range of issues, from broadband access, online privacy and data portability to intellectual property protection, competition law, international trade and immigration.”

Also, he promises to write about the “next wave in the computing revolution and its potential to use the power of software and the Internet in new ways to enhance choice for consumers, businesses and governments.”

Thus, the first post–on workforce development and skills training by Global Corporate Affairs VP Pamela Passman.

In any case, I am still waiting for that Ballmer blog.

When reports came out last week that Google and Yahoo were downsizing their controversial search advertising deal, I told a Yahoo exec I happened to be having dinner with that that it was the surest sign that the search giant was about to dump the long-suffering Internet portal.

The exec, who made the case that the deal was always tactical, and not strategic, laughed. For all its problems, Yahoo (YHOO) has always been a straight-up player and such sneaky machinations are not its strong suit.

Google, not so much.

After all, Google (GOOG) had already tried using The Wall Street Journal the week before to try out an our-way-or-the-highway tactic to play chicken with the Justice Department, to no avail.

As I wrote:

And, while it might be testing the Justice Department in hopes of salvaging the deal, I suspect Google–as much as its founders want to help out Yahoo CEO Jerry Yang and block Microsoft at the same time–is just now figuring out that walking might actually be the best move.”

Then in a sudden switcheroo just days later, Google was doing the docile-dog play, using the Journal again to signal that it was willing to compromise drastically to do a deal and trying more to look cooperative with the Justice Department.

Now, Google is not some Internet Sybil–way out of the deal one week and in another. Instead, it was creating what one might call “plausible deniability,” a Washington, D.C. term that essentially means covering your own petard.

Despite Google’s last-minute theatrics of cooperation, I am sure the decision had long been made at its California Googleplex lair that it would bow out.

After all, many top execs at the company were dead set against it from the start, mostly due to the undue scrutiny it would bring to Google. Those execs now had plenty of ammo to mercilessly strafe the deal from behind.

Early on, that was also a big worry of Google’s own operatives in D.C., who expressed concern–largely ignored at HQ, where execs really do see themselves as not even slightly evil–about its growing image as a scary behemoth.

Well, that picture is now most definitely solidified in the minds of regulators, helped along by the dangerous pontificating by CEO Eric Schmidt a little while back, who haughtily declared that Google would move forward with or without government approval.

“Time is money in our business,” said Schmidt, in a quote that I am sure he would like to take back now.

It was just the arrogant kind of attitude that Microsoft (MSFT) lobbyists, who have been hitting this deal hard like an old bass drum, needed in order to paint an ugly picture of Google in D.C.

And–more troublesome for Google–it gave advertisers and publishers, many of whom have long harbored fear of the company’s growing power, the courage to speak out, which they did in droves, along with many public interest groups.

But, as has been clear for a while, the Justice Department–after making its own big and noisy deal in its veiled public leaks of outside litigators and such–had to move forward with a lawsuit, and before the election was over.

And, indeed, as I have long maintained, stopping the deal was the right move all along, because a partnership between the No. 1 and No. 2 players just never should be allowed, however slight in its configuration.

As I wrote in April:

So, any further hook-up between the two seems sure to become the Justice Department Lawyer Employment Act of 2008, the likes of which we have not seen since Microsoft got its turn at being deservedly whacked for being a monopolist back in the last century.

Let’s face it, outside of those who cannot seem to shake the annoying Kumbaya mentality over at Google, a Yahoo-Google partnership is simply fantastical, like some out-of-control Dr. Seuss ditty.

They could not, would not with a goat. They would not, could not on a boat. They will not share an algorithm, they will not, will not, Jerry-I-Am.”

Because, although Google has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech, the government was never going to allow such a clearly dominant company in search to strike such a deal, given the obvious antitrust implications.

As I also said then: “It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.”

Thus, the die was cast for the inevitable dumping of Yahoo, in a hasta-la-vista-baby letter this morning terminating the partnership, which Yahoo should have seen coming many miles away.

Sources close to the company, which has been justifiably irked about how Google has handled itself with the Justice Department, said execs at Yahoo might have expected the move, but were deeply disappointed too.

(Here is Yahoo President Sue Decker’s memo on the collapse of the partnership.)

At least the very least, Yahoo did use the deal to escape the clutches of Microsoft in the midst of an ugly takeover battle, which investors now wish it had not, given its stock price is now half of what it was then.

And, indeed, it was perfectly tactical in that regard, using the software giant’s archrival, Google, to poke Microsoft relentlessly.

But Google would only prod so much, until it adversely impacted its own main goal of quiet but inevitable domination over search and, in fact, all online advertising.

When it did just that, dragging Google into a thorny briar patch, the company inevitably resorted to one of its internal mantras, “Feed the winners, starve the losers.”

Time will tell just how much a loser Yahoo will be from this latest bump in its current pothole-filled journey.

As to the candy-colored Google image? Well, it’s definitely not as sweet as it used to be.

Please see this disclosure related to me and Google.

You have to admire the sledgehammer stylings of Google CEO Eric Schmidt, who loves to accuse Microsoft (justifiably, I might add) of bullying lobbying tactics in our nation’s capital, in the latest moves in the regulatory fight over the controversial search advertising outsourcing partnership that Yahoo and Google have struck.

Today, just days before the Justice Department will decide whether to move ahead with a lawsuit to stop the Yahoogle deal from proceeding or let it move forward with some other remedy or tweaking, Schmidt announced that he would be campaigning for Democratic presidential candidate Sen. Barack Obama in the last two weeks of the election.

Schmidt said in an interview that it was a personal endorsement and not from the company, even though many of its top execs are longtime supporters of Obama.

“I’m doing this personally,” he said. “Google is officially neutral.”

Well maybe so, and Schmidt has long been politically active himself.

But I cannot help but be struck by the perfect timing of the announcement, right as government officials under the Bush administration must make a move before the election makes them unable to do so.

(Then again, if Schmidt had endorsed Obama after any move by the government, it probably would have looked worse.)

In any case, it now makes any action by Washington policymakers even more complex.

To begin, Assistant Attorney General for Antitrust Thomas Barnett (pictured here), who will be leaving that post after the November election, has not been much of a trustbuster, to say the least, taking a mostly hands-off attitude toward business regulation.

But, in taking a long look at the deal in the first place, a partnership that does not actually need Justice Department approval to move forward, and hiring an outside counsel too, Barnett has also put himself out on a limb.

Thus, he is likely not to pat Yahoo (YHOO) and Google (GOOG) on the back and wish them good luck in their exciting endeavor.

That’s especially true given that a wide range of advertisers has expressed worries about the deal, which they say will lift online search ad prices and create a dangerous duopoly, along with public interest groups that have called the deal dangerous. Plus, there are also the many other special interest groups, all jacked up by Microsoft’s lobbying.

(It still surprises me up that some reports find it shocking that Microsoft is being aggressive here–helloooooo–Google would do exactly the same if the tables were turned.)

Google and Yahoo are arguing that the deal is nonexclusive, does not violate antitrust laws and that prices will not rise since they are determined by auction.

Still, sources close to all parties–Yahoo, Google and Microsoft (MSFT)–said the decision from government regulators, expected as early as this Wednesday, could still go a number of ways.

Under one scenario, the government could file a lawsuit and ask for an injunction to stop the deal from starting at all.

This move would be the most drastic of all. And, more to the point, it is hardest to prove, because there is no actual damage yet to point to as a result of the deal, even if the pair do control upward of 80 percent of the search market.

Under a second, the Justice Department could file a lawsuit opposing the deal, but not ask that it be stopped.

That means that the Yahoo and Google deal could go forward with implementation, even with the suit hanging over its head. It is a move that would provide a lot of data to determine the true impact of the No. 1 and No. 2 search players being in business together.

Under a third scenario, regulators could give Google and Yahoo tacit approval for the deal, with certain new rules about caps or monitoring that are agreed to in advance.

This option is the most complicated, since it is hard to determine what is dangerous and what is not in the fast-moving world of search. Will the Justice Department have a monitor sitting cluelessly next to Yahoo and Google engineers as they fiddle with the algorithm?

Still some sort of new rules to the deal are expected, if Justice takes a pass on a lawsuit.

“They are not going to hold a parade for us, and it is obvious they are interested in putting appropriate guardrails in place,” said one source close to Yahoo and Google. “But they might just say, ‘Go ahead, but we are watching you very carefully.’”

Under a fourth scenario, which Google is pushing for strongly, the Justice Department could simply pass on taking any action at all.

In that case, which seems unlikely, it is not without possibility that some advertisers or even Microsoft could go to court to seek their own injunctions, although that would be extreme.

Microsoft could also ask, given that the Yahoogle deal is nonexclusive, to make a similar deal with Yahoo. If it is rejected, the software giant could use that as proof that it is not.

But what is perhaps most interesting is that Yahoo and Google have not completely agreed as to how to handle this difficult process.

Yahoo, which has only recently become more active in lobbying for the deal, has been more willing to allow the government to set parameters in order to get regulatory blessing.

The company has also been quietly telling advertisers worried about it there are moves to come–Yahoo execs are obviously referring to a possible merger deal with Time Warner over its AOL unit–that mean that advertisers should be less scared of Yahoo becoming a satellite of Google.

Google, as is typical for it, has been more aggressive in its stance, holding out for less–if any–tweaking of the original Yahoogle deal.

Even its partner Yahoo thinks the powerful Internet giant has had a tin ear in this regard so far, with Yahoo execs cringing when Schmidt was widely quoted as saying that the deal would move forward with or without Justice Department approval.

The statement by Schmidt, in which he also added, “time is money in our business,” made him seem a bit arrogant about the role policymakers have.

Obviously, Schmidt misspoke, which all neophyte politicians tend to do now and again.

Today, he was much more circumspect, although he still managed to get a dig–or was it a warning?–in.

“My sense is, the Justice Department makes judgments on these issues independent of politics,” Schmidt said, priming the pump perfectly. “It would be unfair to Justice to imply [that supporting Sen. Obama] would make a difference.”

Yes, that would be completely unfair.

Please see this disclosure related to me and Google.

And it could not come a minute too soon.

Yahoo has been unusually quiet about the issue, after weeks of Google’s more aggressive and listen-to-us-big-brains approach (along with some creative fake-blurbing of BoomTown!).

That’s all resulted in more Justice Department scrutiny and more critics piling on, including the typically dulcet Canadians, who might also be launching an antitrust investigation.

Thank goodness, then, that the first foray by Yahoo President Sue Decker (pictured here) makes the case in a much more sensible and straightforward manner, which has been sorely needed on the Yahoogle side.

In her piece on Yahoo’s corporate blog–the inexplicably named Yodel Anecdotal–called “Myth-busting and the Yahoo!-Google Agreement,” Decker’s just-the-facts-ma’am approach is well done.

Writes Decker:

“Here’s the bottom line:
Yahoo! will use this agreement to help us become a stronger competitor in all aspects of online advertising; and Yahoo! is not exiting the sponsored search business. We plan to remain a strong player in sponsored search.”

That said, Decker does take aim at a lot of paper tigers and makes some assertions about the strength of Yahoo’s search business that stats belie.

I have been pretty clear, as have many, that the pair will not fix prices; nor are they merging their businesses in some fashion to create a search behemoth that controls more than 80 percent of the market.

In addition, Decker’s assertion that Yahoo did not do an exclusive deal to avoid the monopoly issue is kind of moot–never ever would the pair have been allowed to strike such an agreement.

Nonetheless, even in this looser partnership, there is reason to be worried.

Most people’s problem, actually, is over whether the No. 1 and No. 2 players in any market should be allowed to partner at all.

And what most are nervous about is what happens if Yahoo (YHOO) becomes too dependent on Google (GOOG) as its search market share declines (and it is declining, to be sure, according to all stats on the subject).

Nonetheless, it is hard not to like Decker’s examples of how Yahoo cannot fill up all search page results with ads, such as a search about the “elevation of Mount Elbert.” (That lovely highest peak in the Rocky Mountains is pictured at left.)

Decker also does not spend a lot of time playing victim to the mean lobbying of Microsoft (MSFT). While she does mention it, she does not dwell on it, as Google has.

And, surprising to me, Decker does clearly admit that Yahoo is doing this deal because advertisers pay more for Google queries than for those on Yahoo.

With some enthusiasm, she also tries to make the case that Yahoo is attempting to change that.

Writes Decker:

“We will implement the agreement in a way that respects an important principle you may know as the Hippocratic Oath: ‘first, do no harm.’ That is, we will not use Google ads in a manner that would create a significant risk to the health of our own sponsored search business.

“It’s important for us to recognize when using Google ads is beneficial for users and advertisers. Queries for which we have no coverage, low depth, and/or low relative monetization are all circumstances in which backfilling probably makes sense–they indicate that Yahoo! is not currently delivering enough value for that inventory. If Google can deliver that value where we currently don’t, then everyone wins–including the advertiser and the consumer.”

I like the idea of backfilling, even if I don’t like the fact that it is the too-powerful Google that is doing this heavy lifting for Yahoo.

But, at the very least, Decker is being honest that Yahoo has come up short and needs help, as it tries to right itself.

Admitting you have a problem, of course, is the first step to recovery. So, let’s hope the cure Yahoo is using–better and more search ads from Google–does not kill it.

Here’s Decker’s whole post on the Yahoogle deal:

Myth-busting and the Yahoo!-Google Agreement
Posted September 26th, 2008 at 12:23 pm by Sue Decker, President

Sue Decker
President

Yesterday, BoomTown took a rather strong stand against Google and its recent aggressive efforts to defend its outsourcing deal to sell some of Yahoo’s search advertising.

Given that the pair have a more than 80 percent combined market share in the search business, I and many others–advertisers, publishers and state and federal regulators–are a bit nervous about further concentration of market power in one set of hands, even if they are such Googley hands.

But in the interest of fairness and because I like to argue with myself–combined with some insights from some smart people I have kibitzed with on the issue–here is a counterpoint with three key reasons why Google and Yahoo might hold firm in launching the partnership, which sources said is likely to start on Oct. 9.

1.) The Justice Department is not actually serious about taking on Google.

While it is true that the government has hired seasoned litigator Sandy Litvack–the former antitrust chief in the Jimmy Carter administration–to consider whether it has a case against the controversial partnership, the move by the DOJ’s antitrust unit might be more political coverage than anything else.

Assistant Attorney General for Antitrust Thomas Barnett (pictured here), who will likely be leaving that post after the November election, has not been much of a trustbuster, to say the least, taking a mostly hands-off attitude toward business regulation.

Thus, he might be making the move to placate intense lobbying by Microsoft (MSFT) and to look like the DOJ’s antitrust unit can act.

Interestingly, Barnett had, according to a New York Times piece last year, “urged state prosecutors to reject a confidential antitrust complaint filed by Google that is tied to a consent decree that monitors Microsoft’s behavior. Google has accused Microsoft of designing its latest operating system, Vista, to discourage the use of Google’s desktop search program.”

And even more interesting, Barnett previously worked for a law firm that repped Microsoft on antitrust issues (although Barnett did not work on Microsoft cases).

2.) The Justice Department will lose if it decides to make a case against Google.

Let’s be clear–Google (GOOG) has done nothing wrong yet, because the Yahoo deal has not yet begun.

Well, except that it has been scarily successful in its primary business of search.

Google has argued that such success is no crime and that the deal would have strong user benefits.

The company has also argued that working with Yahoo (YHOO) will not raise online ad prices, part of Google’s basic argument that its auction-style business model where advertisers set the price makes that impossible.

But what its critics are essentially asserting is that, because of its dominance, Google should simply not be allowed to strike a partnership with the second largest player, Yahoo.

Fears include that rise in online ad prices, a Google control over the market that would make it impossible for others to compete and an increased ability to dictate terms to customers.

But, Google argues, that’s all speculative and unknowable until the partnership with Yahoo launches.

Thus, there’s not a whole lot for the Justice Department to hang a case on, in contrast to its case against Microsoft, which landed in court because of bullying behavior that actually took place before the case was waged.

So why should Google run away, when there is no tangible proof of abuse?

Better still, if the DOJ did take Google on and Google won, the Justice Department would be hard-pressed to come at Google again for a good long time.

3.) If Google caves and walks away, it damages Yahoo and makes for a bad precedent.

It is not likely that Google wants to make an enemy of Yahoo, because even in its weakened state, Yahoo is a better to have as a friend than as a foe.

And taking away an expected $800 million Yahoo estimates it will make in added revenue on the deal is not any way to treat a friend.

In addition, one could argue that walking away now is premature. As Google’s power grows, there will never be a better chance for it to win its arguments.

And if Google gives in to DOJ pressure now, essentially admitting it is too powerful, it might have to concede one thing after the next in the future–from distribution deals to acquisitions to whatever it might try to do.

Finally, while I still believe Google should not be in business with Yahoo, I think it is indeed going to stick to its typically stubborn guns, launch on Oct. 9 and then make tweaks that regulators might request based on how the partnership goes.

But, in order to do that most smoothly, it might be a good idea for Google execs to stop making so much noise defending themselves and to resist the urge to attack Microsoft so loudly.

It might even take a clue from the unusually quiet Yahoo, from whom not a peep has been heard on the issue.

Google could do with some of that self-control.

Because that famous line from “Hamlet” certainly applies: The search giant doth protest too much, methinks.

(By the way, besides a press conference by CEO Eric Schmidt this week on the Yahoogle deal, here are two Google posts defending the deal on its public policy blog. One is by Google Chief Economist Hal Varian and another by U.S. ad head Tim Armstrong.

Please see this disclosure related to me and Google.

As BoomTown readers know, I have been adamant that Yahoo’s online ad outsourcing deal with Google is troublesome on a lot of levels. Although, so is government intervention.

From giving advertisers less choice to creating a de facto monopoly to its potential for stifling innovation, the deal–which was struck as a parry to Microsoft’s attempt to buy Yahoo (YHOO) and is set to begin next month–gives me the heebie-jeebies, given the pair control 80 percent of the online search ad market.

Now, The Wall Street Journal is reporting that the Justice Department has quietly hired an outside litigator–former Walt Disney Vice Chairman Sanford Litvack–to contemplate whether the government should consider mounting an antitrust case against the search giant.

The article stresses that government regulators have not yet decided to move forward or whether they would simply focus on the Yahoo deal or cast their net more broadly concerning the huge market share of Google (GOOG) in search.

But, ironically, the move has echoes of the Justice Department suit against Microsoft 10 years ago for antitrust violations. Well-known litigator David Boies was hired as special counsel in that case.

Google has argued since it struck the deal that it keeps competition alive. In a statement to The Journal, the company said:

We voluntarily delayed implementation of this arrangement to give the Department of Justice time to understand it, and we continue to work cooperatively with them. While there has been a lot of speculation about this agreement’s potential impact on advertisers or ad prices, we think it would be premature for regulators to halt the agreement before we implement it and everyone can judge the actual impact.

Still, Google faces increasing headwinds. Major advertisers have been complaining about the implications of its Yahoo deal, including the Association of National Advertisers this week.

In an egregious pot-kettle move, Microsoft (MSFT) has also been very vocal about stopping the deal, including at Congressional hearings in Washington, D.C. in mid-July, which I attended.

Here are video interviews I did with the lawyers from Google, Yahoo and Microsoft at that hearing:

This kind of arguing will likely be taking place for a long time to come now with the Justice Department weighing in.

And even though what the government knows about the Internet could fit on a microchip, it is probably a good idea for regulators to at least poke around in this arena.

Because what I wrote back in April when the Yahoo-Google deal was revealed still stands:

And while it might be a long-cherished dream of Google’s to take over Yahoo search–and also get the chance to return to the scene of the crime, since Google got its first big push from doing Yahoo search, before Yahoo wised up too late–there is simply no way this will be allowed by regulators, nor should it.

Still, you have to almost admire the chutzpah of the search giant in making this move, if the sheer and unadulterated arrogance of it wasn’t so distracting.

Because while Google has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech (although all those beach bikes on its campus inexplicably creep me out a little bit), the company still cannot be allowed to have a monopolistic share of the market.

It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.

And no matter how many flashy moves Google and Yahoo make, it is flat-out wrong for one player to so dominate such an important sector (and I hope regulators look at the email domination in the case of a Yahoo-Microsoft union with a similar gimlet eye).”

Please see this disclosure related to me and Google.

All week, Yahoo’s investors have waited for the other shoe to drop–its much-hyped ad deal with Google (GOOG), in which Yahoo (YHOO) would outsource some of its online search-ad monetization business to the search giant.

But will that deal land with a thud instead?

Today, The Wall Street Journal reports that Google executives “are now divided over whether to pursue a search-advertising deal with Yahoo.”

Actually, that depends what you mean by divided, of course, and which Google execs are on which side.

According to sources BoomTown talked to at Google, while there is a lively debate going on at the Googleplex over the ramifications of such a deal, it is more likely than not that the search giant will cut some kind of limited and carefully crafted deal with Yahoo.

Sources said that the structure of the deal is critical, especially making it non-exclusive, limited and also low-key, given the scrutiny related to antitrust issues such an arrangement between the No. 1 and No. 2 companies in Web search will surely and deservedly bring from government regulators.

Some Google execs are very worried about calling further attention to the company in Washington, D.C., as the behemoth that it has actually become, something another behemoth–Microsoft (MSFT)–would surely love to have happen.

“Perceived concentration can be as bad as real concentration, which is not happening if we do a deal with Yahoo in the right way,” said one exec. “But that might be hard to explain clearly.”

While Google execs think that a properly structured deal will pass muster, they are also worried that it might not be worth the damage to the company’s image that might come with a bruising fight over the issue.

Google is still smarting over the brass-knuckle tactics Microsoft used in D.C. related to its DoubleClick deal, delaying its approval and causing Google a lot of money and time.

Already via that deal, its entry into the spectrum auction and its fight over copyright issues with media giant Viacom (VIA), Washington politicians and regulators can’t help but have the growing perception the Google is perhaps not as bouncy and fun and harmless as the company tries to project.

In truth, Google is still bouncy and fun (see its founders Larry Page and Sergey Brin on exercise balls here).

But harmless? Not so much.

In a previous post, I argued that such a Yahoo-Google hookup is a bad idea for consumers, advertisers and anyone interested in a competitive landscape.

I wrote: “It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.

And no matter how many flashy moves Google and Yahoo make, it is flat-out wrong for one player to so dominate such an important sector.”

In addition, some Google execs worry that since Yahoo is staying in the search business, while also outsourcing to Google, that it could gain valuable information about how Google operates.

That’s a no-no at Google, which has what some in Silicon Valley call a “black box” image. In other words, please don’t pay attention to the man behind the curtain.

The less-grand deal, of course, will not be as good news for Yahoo shareholders, since it will not bring in the billion-dollar baby in terms of increased cash flow that some analysts had been bandying about.

And Yahoo is under pressure to come up with a lot of hits now that Microsoft has walked away–for now, at least. Now, it must go it alone, but much damaged by the takeover effort.

During the heat of the deal, such a link-up was seen as a coup for Google, which always likes to stick it to Microsoft.

And it was also seen as a way for Yahoo to better monetize its search business, especially since its own efforts have been so lagging behind Google in size, scope and yield.

And, more importantly, it gave Yahoo an effective weapon in fending off Microsoft’s unsolicited takeover bid.

Well, it worked, it seems, as the talks between Google and Yahoo were the bone that stuck in the throat of Microsoft CEO Steve Ballmer, much mentioned in his kiss-off letter to Yahoo last weekend.

Ballmer wrote, in part: “We regard with particular concern your apparent planning to respond to a ‘hostile’ bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo undesirable to us for a number of reasons.”

I doubt the aggressive Ballmer will let such a deal pass without a lot of heckling and, of course, much, much worse.

Please see this disclosure related to me and Google. ]]> http://kara.allthingsd.com/20080508/googles-chilly-feet/feed/ 0 http://kara.allthingsd.com/20080503/microhoo-hasta-la-vista-hotmail/ http://kara.allthingsd.com/20080503/microhoo-hasta-la-vista-hotmail/#comments Sat, 03 May 2008 07:48:41 +0000 Kara Swisher http://kara.allthingsd.com/20080503/microhoo-hasta-la-vista-hotmail/