Google Inc believes regulators would not bar a potential deal with Yahoo Inc because it would be "non-exclusive" and falls short of an outright merger, claim sources familiar with Google's strategy.
Yahoo is exploring alternatives to Microsoft Corp's 42.7 billion U.S. dollars takeover offer which the Web pioneer has rejected for being too low.
The U.S. Justice Department is questioning the companies about potential competitive issues raised by a partnership, sources said last week, as Yahoo completed a two-week test of Google's system for selling ads alongside Yahoo's own Web search results.
Google believes such a partnership would not be anti-competitive because it would be an arrangement in which Yahoo would use Google's more profitable search advertising platform to make more money for itself, said a source on Friday.
A deal would be no different from partnerships Google has with other Web companies including Time Warner Inc's AOL and IAC/InterActiveCorp, the source said.
By contrast, Google thinks a takeover by Microsoft of Yahoo would raise far more anti-trust concerns because the combined company could corner large chunks of multiple markets, from Web mail to instant messaging, the source said.
Testing system
Google and Yahoo have said they cooperated with the Justice Department and told the agency about the test.
When Yahoo said two weeks ago that it had begun testing Google's AdSense system, it drew outcry from critics who see Google's domination of the market as a barrier to a deal.
Google is the top search engine and a tie-up with No. 2 search engine Yahoo would give the two companies more than 80 percent of the market, according to ratings company Hitwise.
Neither company has disclosed the results of the test, under which three percent of U.S. Yahoo searches carried advertisements using AdSense.
Yahoo President Susan Decker said last Tuesday it was "premature" to speculate on options the company might pursue with Google.
Google remains open to further discussions with Yahoo on hammering out a deal because no final decisions have been made, the source said. For its part, Microsoft claims a Yahoo-Google partnership would make the market for Web search far less competitive.
Source: Shanghai Daily/Agencies
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