Google: Yahoo deal to start in fall

Google, facing U.S. Justice Department scrutiny of its advertising partnership with Yahoo, will proceed with the agreement by early October, Chief Executive Officer Eric Schmidt said.

"We are going to move forward," Schmidt said Thursday. "We are in the process of talking to the government. They've not indicated one way or the other how they're dealing with us."

Google is trying to pull off the deal amid concerns it will give the search-engine leader too much power in the $65 billion online-advertising market. Sen. Herb Kohl, D-Wis., asked last month whether the agreement will reduce Yahoo to "nothing more than the newest satellite in the Google orbit."

"We always worry a little bit, but we think our arguments are pretty strong," Schmidt said. "Yahoo has made it very, very clear they're going to take the best parts of their network and ours and combine them."

The companies said in June they would give the Justice Department 3 ½ months to review the partnership, even though they indicated it wasn't legally necessary.

The companies signed the agreement after a six-month-long struggle by Microsoft to acquire Yahoo for as much as $47.5 billion.

Yahoo CEO Jerry Yang, who said the Google deal may add $800 million a year to sales, is seeking to boost Yahoo's share price after a tussle with investor Carl Icahn for board seats.

Under the pact, reached in June, Yahoo will show Google ads, which command a higher price, along with promotions it sells on its own. Google will share a percentage of the revenue with Yahoo.

Google isn't seeing much of an effect from the slowing U.S. economy because advertisers are devoting more of their budgets to Web-search links, said Schmidt, who was in Denver to attend the Democratic National Convention.

"The people who are advertising prefer targeted ads," he said. "Google is not a good bellwether for how the economy goes as a whole."

If the economy worsens, Google "could be affected," Schmidt said. "There's no question that the U.S. is in a slow period. Whether it's a recession or not, I don't really know. We know Europe has some structural problems. Google has a major presence in both."

Google is curbing its spending growth as it expands, Schmidt said. Expenses for research, marketing and general corporate purposes increased 36 percent last quarter to $1.64 billion, down from 85 percent growth a year earlier, according to Bloomberg data.

"We are going to increase our expenses in a slower way, which I think is just prudent," Schmidt said. "We're a large enough company that this is a good time to do it."