Is Google Lying Again?

I find myself questioning Google's (Nasdaq: GOOG  ) actions lately.

Actually, let me retract that statement. I know exactly what's driving Google's response to Microsoft's (Nasdaq: MSFT  ) play for Yahoo! (Nasdaq: YHOO  ) . The initial outrage, the olive branch to Yahoo!, and now the alleged recoil -- it's all a well-rehearsed act for Big G. I just don't know why the rest of the market can't see through this wafer-thin charade.

Google's latest turn came in a Wall Street Journal story yesterday, claiming that Google's enthusiasm for allowing Yahoo! to incorporate Google's massive ad network is waning. Enthusiasm waning? Losing interest? You can't be serious.

Yahoo! outsourcing its ad space -- at least its paid-search text-ad space, since Yahoo! is doing just fine in display advertising -- would benefit Google in a kazillion ways.

  • Even if Google paid Yahoo! 80% to 90% of the revenue generated through the partnership, the remainder would still be found money for Google.
  • It would silence Google's biggest competitor in paid search.
  • Microsoft would lose its obvious partner in taking on Google.
  • Google would only have to concentrate on fighting off Microsoft, instead of both Yahoo! and Microsoft.

I stopped at four, but there really are a kazillion reasons for Google to be chomping at the bit for a shot at landing Yahoo!'s Web-leading traffic. This is like a pie lover passing on dessert. It's Dale Earnhardt Jr. saying he would rather walk.

The popular argument is that regulators would nix the deal, but this isn't an acquisition. Google's been on top of the world, and there was no public outcry when AOL, MySpace, and CNN came running to Google's AdSense program to more effectively monetize their pages. Is Yahoo! now the only company that can't milk more out of its traffic, the way countless third-party publishers have by turning to Google?

With the latest rumors now claiming that News Corp. (NYSE: NWS  ) may be seeking to combine Yahoo! with MySpace, Google should be very interested. After all, Google is in the middle of a contract to serve its ads through MySpace. Even if Google pinned part of this past quarter's margin crunch on problems in monetizing social networking, the company would probably rather take the hit than let a rival's ad inventory gain wider distribution.

Of course Google wants to be the white knight here. It's just playing hard to get. If it acts too desperate, Microsoft may be pressured to make a higher bid, even as its own investors grumble about the altitude of the original offer.

Google has rehearsed its reactions. Now it's just waiting for the other players to fumble their lines.

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