Google and Yahoo Ad Deal Discontinued.

Google has decided to walk away from the cooperative advertising deal with Yahoo. They declared that they would rather cancel the deal than mount a legal defense against the law suit filed against them.

Google's Chief Executive Eric Shmidt said in an online interview, "We canceled the deal with about one hour to go before a lawsuit was going to be filed against our deal. We concluded after a lot of soul-searching that it was not in our best interest to go through a lengthy and costly trial which we believe we ultimately would have won."

The alliance was designed to funnel some of Yahoo’s search advertising to Google's platform and up to $800 million in incremental search revenue to Yahoo. That proposal, however, met strong opposition from Microsoft, advertisers and federal regulators.

The US Justice Department’s investigation found that Google accounts for more than 70 percent of the Internet search advertising markets. A deal with its main competitor Yahoo would give the two companies market shares of 90 percent and 95 percent in the search advertising and search syndication markets. Thomas Barnett, assistant attorney general in charge of the Justice Department's antitrust division, said in a statement:

"The arrangement likely would have denied consumers the benefits of competition — lower prices, better service and greater innovation,"

The question now is where does Yahoo go from here.