High anxiety: Microsoft’s bid for Yahoo! has Google searching for cover

It’s clear that Google is at least a bit worried about what might happen if Microsoft absorbs Yahoo!. Why else would Google executives be blogging about the “troubling questions” the bid raises?

By Sidney Hill, Jr., executive editor February 5, 2008

Microsoft ’s $44-billion offer for Yahoo! seems to be an admission that Microsoft can’t build a strong enough search/online advertising engine on its own to compete with industry leader Google .
The question remains whether the combined capabilities of Yahoo! and Microsoft—whose search engine is known as MSN—will be formidable enough to challenge Google, whose position in the search and online advertising arena is similar to the stranglehold Microsoft has on the computer desktop market.
Only time will reveal the answer, of course, but it’s clear that Google is at least a bit worried about what might happen if Microsoft absorbs Yahoo!. Why else would Google executives be blogging about the “troubling questions” the bid raises?
According to a blog posted February 3 by David Drummond, Google’s senior VP, corporate development and chief legal officer, those questions include the possibility that Microsoft could “exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC.”
Drummond then went on to write: “Could the acquisition of Yahoo allow Microsoft—despite its legacy of serious legal and regulatory offenses—to extend unfair practices from browsers and operating systems to the Internet? In addition, Microsoft plus Yahoo equals an overwhelming share of instant messaging and Web email accounts. And between them, the two companies operate the two most heavily trafficked portals on the Internet. Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors’ email, IM, and web-based services? Policymakers around the world need to ask these questions—and consumers deserve satisfying answers.”
The Wall Street Journal reported that Google’s expressions of concern about this potential merger have not been limited to blogosphere. The Journal says Google has made behind the scenes offers to help Yahoo resist the Microsoft’s bid, with those offers perhaps going as far as encouraging other companies to enter rival offers.
Google needs to be careful how it treads in this area, however, since its own dominant position in online search and advertising has not gone unnoticed by government regulators.
In its analysis of deal, Boston-based AMR Research identified the European Union, which “clearly hates Microsoft,” as the only potential wrench in the deal. “On the other hand,” AMR analysts wrote, “the EU is clearly concerned about Google’s growing influence, as the lengthy review of Google’s proposed acquisition of DoubleClick shows. Microsoft or Google: which one do European regulators fear more?”
Rajeena Brar with Paris-based Pierre Audoin Consultants says Google controls close to 90 percent of United Kingdom’s online advertising and/or search engine space. That figure is estimated to be roughly 75 percent worldwide.
But as Brar also said, the bid for Yahoo! provides great hope for Microsoft advocates. While Yahoo and Microsoft alone have not been a “real threat to Google,” Brar says, “The proposed acquisition will most definitely cause Google anxiety.”
That much is obvious from Google’s blog posts and its other reported actions. The two remaining questions are whether Yahoo shareholders and/or government regulators will allow the merger to be completed.
Microsoft, in what is an uncustomary position, is telling industry analysts that the deal would enhance competition—and benefit consumers—by forming “a strong No. 2 competitor” to Google.