Google has warned that Microsoft’s proposed takeover of Yahoo could stifle internet development and extend monopoly power…
“Google issued a statement speaking out against the proposed Microsoft acquisition of Yahoo over the weekend, citing antitrust and competitive concerns…”
San Francisco — Internet giant Google said Sunday it finds “troubling” Microsoft’s multi-billion-dollar bid to acquire rival Yahoo and urged US and international regulators to strenuously vet the proposed deal.
“Microsoft announced Friday it is courting California-based Yahoo with a 44.6-billion-dollar offer.”
It is not exactly a secret that the Big Three search engines have never been on the friendliest of terms.
“With huge sums of dollars at stake and a single percentile of market share equating to hundreds of millions of dollars, the veneer of friendly consummate professionalism seen on the blogs and newsgroups of big names within the search divisions of Google, Microsoft and Yahoo! though — maintaining an outwardly professional outlook whilst fighting tooth and nail to claw percentile points back into their respective court.”
In a blog post, David Drummond, chief legal counsel for Google, wrote:
“Microsoft’s hostile bid for Yahoo raises troubling questions. Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?”
Drummond warned that the deal could result in unacceptable market dominance in which the combined companies take the lion’s share of instant messaging and web email accounts.
“While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies–and then leverage its dominance into new, adjacent markets,” he said, adding that the Redmond, California-based company has a “legacy of serious legal and regulatory offenses” which it could not extend to the Internet.
By “new, adjacent markets,” Drummond clearly means the growing and lucrative search advertising market, in which Google is the undisputed leader with about 75% of search-ad revenues worldwide.
This is sure to be dismissed as sour grapes by many but, while Microsoft was concerned over the direction advertising might take after the DoubleClick acquisition, Google is more concerned with that fact that a Microsoft-Yahoo! consortium would have the power to shape the entire direction and evolution of the internet itself.
The words could not be any plainer. In his blog post, Drummond also pointed out that a union of Microsoft and Yahoo! would dominate the instant message and e-mail sectors and would combine the two most heavily trafficked portals on the Internet.
“Policymakers around the world need to ask these questions–and consumers deserve satisfying answers.”
“This is more than simply a financial transaction, one company taking over another. It is about preserving the underlying principles of the internet: openness and innovation.”
Drummond added that Microsoft and Yahoo are the two most visited portals on the internet, and that Microsoft has used a monopoly position in the past to push its own software.
“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?”
Drummond is referring to the period throughout the 1980s and 1990s when Microsoft is known to have engaged in various strong-arm tactics, including aggressive buying out of small companies and encouraging the phenomenon of “vaporware” to exert a near monopoly over the personal computer software market.
“Microsoft has suffered heavily for these actions since, incurring a €497 million fine from the European Commission and two new competition inquiries are on the way.”
However, Brad Smith, general counsel for Microsoft, believes that the merger is needed to stop Google’s market dominance.
“Google has amassed about 75 per cent of paid search revenues worldwide and its share continues to grow,” Smith said.
According to published reports, Yahoo and Microsoft have a majority share of the world’s email accounts. Google’s Gmail ranks far below Hotmail, MSN and Yahoo when it comes to the numbers. Conversely, Google has the lion’s share of the world’s paid (75%) and un-paid (66%) search markets.
“Microsoft and Yahoo, on the other hand, have roughly (30%) combined in the US and approximately (10%) combined in Europe.”
Google’s assertions, however, sounded a lot like the pot calling the kettle black. The Mountain View, Calif.-based Internet giant has been accused repeatedly of unfairly dominating online search and advertising.
The questions that Google raised about Microsoft are similar to those that European regulators are mulling in evaluating Google’s proposed acquisition of online display advertising specialist, DoubleClick. U.S. regulators approved the deal late last year, but the European Commission has yet to decide and has expressed concerns about possible anti-competitive aspects of the deal. The commission is expected to weigh in by early April.
“Members of Congress’s House of Representatives Judiciary Committee have scheduled a hearing later this week to probe the antitrust implications of such a merger.”
The committee’s Antitrust and Competitive Policy task force will hold the hearing to give the proposed Microsoft-Yahoo merger “careful examination,” the panel said in a statement.
“Microsoft’s bid … is certainly one of the largest technology mergers we have seen and presents important issues regarding the competitive landscape of the Internet,” the panel’s top two members, Chairman John Conyers and Vice chairman Lamar Smith said in a statement.
Also, EU competition regulators have launched a series of probes against Microsoft, accusing it of abusing its dominant market power.
It “will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising,” he said in a statement posted on Microsoft’s website.
Concerns have also been raised about the cost of the deal. “The $44.6bn price is ‘full, rather than silly’,” said David Mitchell, senior vice president of IT research at research firm Ovum.
“The addition of Microsoft’s engineering capability into Yahoo should allow the combined entity to bring new products and services to market more quickly, something that Yahoo has notably struggled with.
“Meanwhile, Yahoo’s online engineering capabilities will undoubtedly offer Microsoft the potential to bring new services to market, which counters the undermining efforts that Google is pushing forward.”
Although Microsoft is the dominant force in personal computer operating software, a tie-up with Yahoo could help it reposition itself amid a changing tech landscape with more applications moving online, analysts say.
Yahoo would give Microsoft a search engine to compete with Google’s; a popular web portal for email, shopping and news, as well as one of the most recognized brands among online users.
An article posted Sunday night on the Web site of The Wall Street Journal suggested that Google might take active steps to help Yahoo! stay independent, too.
Google statement on Sunday said:
“We believe that the interests of Internet users come first — and should come first — as the merits of this proposed acquisition are examined and alternatives explored.”
Google declined to confirm the report, which stated that Chief Executive Eric Schmidt had offered assistance to Yahoo!’s Jerry Yang, citing unnamed sources familiar with the matter. Although it is unlikely Google would try to buy Yahoo! outright, it could assist others, or craft a package that guarantees Yahoo! more advertising revenue.
Yahoo! could also consider an alliance with Google in order to fend off the bid from Microsoft – although this depends heavily on the shareholders. Those who own a long term stake in Yahoo! have seen the firms fortunes decline dramatically over the past few years, with the share price in the doldrums, traffic dropping in most markets and advertising revenue consistently missing market targets. If shareholders approve the deal, then market analysts generally agree that, due to Google’s massive market dominance, then there would likely be no regulatory hurdles for Microsoft to overcome.
Ultimately, it is very unlikely that Yahoo!’s majority shareholders wish to be taken over, but whether the multiple smaller investors see this deal as too good to be true remains to be seen.
“Whatever the outcome, the implications are enormous.”
A Google/Yahoo! alliance will see the two largest and most successful engines worldwide join forces to combat Microsoft, whereas a Microsoft takeover of Yahoo! will bring the two companies’ combined market share to 35% worldwide, against Google’s 50%.
This will lead to much stronger competition and the possible effect of Microsoft drastically reducing its advertising rates for both Yahoo! and Microsoft in order to try and win market share and hurt Google’s profits.
Yahoo has yet to say whether it will accept the offer, but analysts have said it is too good for the struggling Internet veteran to refuse and that US regulators are unlikely to find grounds to stop it.
“The deal could reshape the landscape for high technology by combining Microsoft and one of the leading brands on the Internet.”