Concessions, confessions, and digressions stand in the way of Yahoo!'s (NASDAQ:YHOO) plan to outsource some of its paid-search space to Google (NASDAQ:GOOG).

The deal, now slated to begin Oct. 22 if it clears regulatory hurdles, is being contested by Microsoft (NASDAQ:MSFT), publishers, advertisers, and anyone who doesn't want to see Yahoo! have a good time.

This morning's Wall Street Journal details how Yahoo! and Google are in talks with the U.S. Justice Department, hoping to shake any antitrust concerns that the hookup may trigger.

The negotiations may find the marketing pact approved only if Yahoo! agrees to cap its usage of Google ads. That, in and of itself, would require monitoring, potentially peeling back the curtain on Google's ad-serving technology for the world to see.

Google doesn't want that, of course. Yahoo! also can't afford to limit its reliance on Big G's paid search ads. The moment that Yahoo! begins incorporating Google ads into its search query result pages, it's going to be a hard sell for advertisers. They will just flock directly to Google for all of their contextual marketing needs. There is no point in Yahoo! making more on its Google-served ads if it's potentially losing more than that with its drying inventory.

There's a lot riding on this. Yahoo! sees the deal adding as much as $250 million to $450 million in annual operating cash flow. That is enough, in theory, to tack on a few billion dollars to Yahoo!'s diminishing market cap. It will come at a price, of course, as Yahoo! will become less relevant as an originator of lucrative targeted text ads.

However, what does it mean if antitrust regulators nix the deal or if they demand too much in concessions? It forces Yahoo! to continue to offer a presumably inferior paid search product, at a time when other high-traffic Google AdSense-serving sites like Time Warner's (NYSE:TWX) AOL, News Corp.'s (NYSE:NWS) MySpace, and Viacom's (NYSE:VIA) Neopets are free to continue to lean on Google.

There seems to be no way out of this thorny situation. Google is being punished because it's too good. Yahoo! is being punished because it has the misfortune of being a distant second. Microsoft may win because it is an even more distant bronze medalist. It's like the Bizarro Olympics.

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Longtime Fool contributor Rick Munarriz would rather throw a search party than call for one. Hdoes not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.