Google's Microsoft Fixation

Google just released a statement on Microsoft’s bid to acquire Yahoo. David Drummond, Google’s general counsel, wrote that the prospective deal “raises troubling questions.” He goes on to outline the points in what may turn into an antitrust challenge were the deal to be consummated. If the Google management team has a weakness, it is an obsession with Microsoft. That’s understandable perhaps. Eric Schmidt, Google’s chief executive worked at Sun and Novell, two companies that did battle with the Redmond, Wash., giant. And much of the rest of the top management are veterans of Netscape, which was essentially done in by Microsoft. This oversensitivity may well cloud their reaction to the prospect of Microsoft buying Yahoo. On the face of it, the combination of its two largest rivals doesn’t look good for Google. In reality, that deal well could be a blessing for Google. As I wrote Friday, there are enormous challenges to integrating those two companies. Already, Microsoft and Yahoo have lost the initiative online and are trying ineffectively to catch up with Google. Two years of internal bickering could put them further behind. Mr. Drummond asks whether Microsoft will be able to use its position to compete unfairly on the Internet Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC? While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies — and then leverage its dominance into new, adjacent markets. Microsoft, of course, has been trying to do this ever since it put the icon for the first MSN online service on the Windows 95 desktop. And whatever audience MSN has gathered since then has largely come from its default position in Internet Explorer and other Microsoft products. But all this, and many billions of dollars from Microsoft’s monopoly-powered cash trove, have done little more than earn the company third or fourth place in crucial online markets. It is hardly clear Windows can give any more of a boost to Yahoo than it did to MSN. Google points out that Yahoo and Microsoft would wind up with a majority of the worldwide instant message market. But that is hardly a big deal. There’s little money in instant messaging; after all AOL’s lead in the United States hasn’t translated into any other tangible benefit. Moreover, if the effect of a Microsoft Yahoo deal is to further along the slow movement to make all IM systems inter-operable, consumers benefit. Google may well be raising antitrust questions out of mischief rather than fear. It is smarting from Microsoft’s campaign to block its acquisition of Doubleclick, which is still waiting for approval from European antitrust regulators. So it may simply be trying to turn the antitrust spotlight back onto Microsoft and further slow down its rival. But if Google gets too focused on fending off Microsoft, it well could do something irrational. There is talk of Google aiding a private equity fund raise a rival bid for Yahoo. Maybe it could agree to provide search ads for Yahoo, guaranteeing enough cash to get the deal financed. That tactic could also force the price higher for Microsoft. What if Google won it instead? Be careful what you wish for. Buying Yahoo might work out well for Google, depending on the terms. But it would certainly raise its own antitrust questions. And getting into a messy fight and then a complex integration of systems might well bog Google down when it could have been free to sprint further ahead of its rivals.