It was announced yesterday that the European Union is to investigate the pending deal between search giants Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO) that would see Google Adwords online advertisments shown prominently in Yahoo search engine search results.

The deal would see a huge percentage of online advertising going through the two search engines (80% by some estimates) and the deal is estimated to be worth up to half a billion dollars a year to Yahoo.

A complaiant was lodged with the US anti-trust commission last month by the US Association of National Advertisers and in the last week Google has changed the way it's adWords system functions so that adverisers are no longer set a minimum threshold they must bid to get certain keywords to display their adverts. The change is a subtle one, a user's keyword will now always stay active however Google does an instant calculation and estimates the minimum amount a user should have to pay in order to get their ads dispaying in the first page of a potential customers search results.

On the surface of it the system operates the same however Google can counter any claims it is controlling the advertising market because it is now no longer dictating the amount an advertiser has to pay.

On Monday the World Association of Newspapers voiced it's concerns over the deal saying "The reality is that a large portion of the traffic to most online newspapers' websites today comes through paid search or natural results on search engines, for this reason, competition among search engines is absolutely vital for newspapers - to ensure that no search engine can set monopoly prices for paid search ads, and to prevent any search engine from influencing users' surfing habits by manipulating unpaid search results."

The EU are investigating the deal despite the fact that the pay per click advertising crossover will only be showing in the US. A spokesman for EU commisioner Neelie Kroes said "In mid-July, we decided to open a preliminary investigation on our own initiative into potential effects of the Google-Yahoo agreement on competition in the European Economic Area (EEA) market".

It would seem that this will be a long drawn out saga but Google and Yahoo have stated that they intend to go live with the advertising deal in October.

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