As noted here in September, an ad partnership between the two largest search engines sure looked anti-competitive. Letting one combo control 70-to-90 percent of the search/display advertising market looked like a negative for small-to-medium online businesses, who’d be out-bid by big national advertisers with deeper pockets. Then, even the Big Fish Advertisers (like the Association of National Advertisers with its combined marketing budget of $100 Billion a year) protested the Google-Yahoo deal to Department of Justice for regulatory review. See Big Online Advertisers Blast Google/Yahoo Deal: Hello, Justice? Get me Anti-Trust.

Meghan Keane of Wired’s Blog says it “just seems mean spirited” to start attacking the Google-Yahoo search deal now that it’s falling apart. Okay. No gloating. No schadenfreude (German for “taking comfort from the shadows or afflictions of others”). But have a look at the reasons, guesses and theories that Search Engine Marketing gurus are coming up with to explain why the Dance of Two 800-pound SE Gorillas missed the music.

Conspiracy Theory #1: Microsoft is laughing behind the curtain. As the distant 3rd ranked search advertising network by revenue, any deal breakers between number one (Google) and number two (Yahoo!) is good news for competitor Microsoft. Microsoft Live Search even launched a pay-per-action bonus payback program that rewards buyers who stay on its pay-per-click search advertising reservation. Neither Google nor Yahoo! followed suit. (See From the Search Ad Trenches: Can Microsoft Kick Google in the Pay-Per? Will Google Feel It?

Conspiracy Theory #2: Too many advertisers, consumer rights groups and politicians weighed in against the proposed ad deal, which would have let Google serve search ads next to Yahoo key words that were not performing profitably. Such Thumbs Down lobbyists against the G-Y ad partnership argued that the deal would be monopolistic, anti-competitive and end up raising minimum bids on all search ad campaigns, which would push smaller entrepreneurs out of the SEM boat to drown.

Opponents to the deal included: ANA trade association, cited above; a consumer group, U.S. Public Interest Group, who argued that an ad partnership between the Top Two search engines would have negative impacts on consumer online privacy; Texas Congressman Joe Barton of the House Energy and Commerce Committee, who didn’t care for the incomplete answers he got from Google or Yahoo in hearings about why this deal would NOT limit competition in online advertising; Yahoo employees (deep background, only) who allegedly are concerned that Google + Yahoo would be an “effective monopoly;” and Justice Department’s Antitrust Division, into whose regulatory lap this ad deal got tossed in September.

Conspiracy Theory #3: Search Advertising revenues are holding steady, even during economic downturn. ** Online Display Advertising revenues are falling. Almost one-half of Yahoo’s revenues come from display advertising. Therefore, Yahoo is in a bind and must make a deal. With somebody.

** A Search Ignite study concluded U.S. search ad spending grew 27% over last year. Besides search ads being Google’s strong suit, Google also gets over half of its revenues from outside the U.S. (Good for Google.) However, Ross Sandler with Search Ignite survey partner RBC Capital Markets, cautions that even the stronger search advertising market slowed down in the Retail sector in late September.

Back to Yahoo’s situation – Yahoo! has been talking to Time Warner about its America Online property, and a rumor as late as October 30 suggested AOL and Yahoo are currently conducting “due diligence” of their financial strengths and weaknesses. Counter rumors say that suggesting the next proposed ad deal will be between Yahoo! and AOL is both “an exaggeration” and “not imminent.”

Conspiracy Theory #4: The final theory about why Google and Yahoo! may be walking away from this ad partnership deal now is: Blame It On Presidential Elections! This might be the winner. The Big Three search engines (Google, Yahoo! and Microsoft) have known all along that a likely Republican presidential nominee would continue a laissez-faire attitude toward government regulatory responsibilities. (See No Evil, Hear No Evil, Let the Free Market Sort It Out.) They also knew that a likely Democratic presidential nominee would insist that tax-payer supported government workers, like those in the Department of Justice, earn their paychecks and actually enforce regulations already on the books. (Stuff like denying anticompetitive mergers and keeping the economic playing fields level.)

Our national political temperature through October 2008 suggests that the President and the Congress after November 4 may flip to a Democrat POV. So, now was the time for Google and Yahoo! to stand down their lawyers and arguments that this advertising partnership is not anticompetitive after all. They have not yet sent the caterers or musicians home on this wobbly wedding reception. Both insist the marriage offer is still on the table. We’ll know soon.