The Web Squabble

Google/Yahoo or Microsoft/Yahoo – Which is Worse?
by: Jerry Liao

The battle for web supremacy is reaching its peak with Microsoft explaining to Congress how a Google / Yahoo deal will threaten the Internet economic balance. On the other hand, Microsoft is also trying to buy Yahoo, and this time teaming up with investor Carl Icahn. So the lawmakers now are confused, which is worse – a Google/Yahoo deal or Microsoft/Yahoo takeover?

Let us examined the developments:

Brad Smith, Microsoft Corp. senior vice president and general counsel, testified on the Google-Yahoo! deal and the future of Internet advertising before the Senate Judiciary Committee Subcommittee on Antitrust and the House Judiciary Committee Antitrust Task Force. In his testimony before both committees, Smith questioned the legality of the deal, outlining the damage it could do to competition in online advertising and innovation on the internet.

“If search is the gateway to the Internet, and most believe that it is, this deal will put Google in a position to own that gateway and the information that flows through it,” said Smith. “Never before in the history of advertising has one company been in the position to control prices on up to 90 percent of advertising in a single medium. Not in television, not in radio, not in publishing. It should not happen on the Internet.

“When Yahoo! talks about this deal generating up to $800 million in additional revenue, that’s money out of the pockets of American businesses, big and small, who will pay higher prices for the very same ads they buy from Yahoo! today,” Smith continued.

Smith focused on the following major concerns around the Google-Yahoo! deal:

– This agreement will give to Google an unprecedented level of control over advertising for search on the Internet – up to 90 percent potentially of all search ads.
– It will mean fewer choices for online advertisers on the Internet, leaving them with no choice but to do business with Google.
– It will lead to higher prices for those advertisers.
– The deal will also put Google in control of the gateway to the internet: searches, raising significant privacy implications.

On privacy, Smith said: “If one company – Google – controls up to 90 percent of online search advertising it will have a complete picture of your online activities. If that happens, Congress won’t need to enact a federal privacy policy, we will already have a national privacy policy – Google’s privacy policy.”

Furthermore, Smith accused Yahoo Chief Executive Jerry Yang of acknowledging that a Web search advertising deal with Google Inc. would reduce competition. According to Smith, Yang said the search business had become a game between two entities – Google versus Yahoo and Microsoft. Smith quoted Yang as saying “And Microsoft “would not be strong enough in this market to remain a pole of its own.”

Google’s chief legal officer David Drummond said in his testimony that Microsoft’s acquisition of Yahoo would “remove a competitor from the playing field.” By contrast, partnering with Google should “help Yahoo remain a vibrant and innovative presence on the Internet,” added Drummond.

Meanwhile Yahoo Chairman Roy Bostock and CEO Jerry Yang sends letter to their stockholders urging support for its current board. The letter states that the Icahn-Microsoft agenda will destroy stockholder value at Yahoo!, serving only their very narrow special interests, clearly not the stockholders interests.

I am not taking sides here, I am for equality and I am against the Internet tilting into a particular company’s favor.

In as far as Microsoft’s contention is concern, I just find it funny what Smith said that “Never before in the history of advertising has one company been in the position to control prices on up to 90 percent of advertising in a single medium.” Can I just ask how many percent that Microsoft control in as far as the PC operating system is concerned? In as far as the browser application is concerned? I believed it’s also around 90%.

So does it mean that competition is healthy if Windows and Internet Explorer controls more than 90% of the market, but is dangerous if Google and Yahoo will control 90% of online advertising and innovation on the Internet? My take here is if it’s healthy, its healthy, if it’s dangerous it’s dangerous – there are no ifs and buts here. No exceptions to the rule.

Now let’s move our attention to Google. I already said that Google is fast becoming Microsoft in the online world. They practically control almost all areas of the Internet particularly advertising and search, and they are still growing. Google can become more powerful than Microsoft because the battlefield now is the Internet. Any device (not just PCs) that can connect to the Internet is a potential client and army of Google. I also said that Google should be very careful in handling this enormous power and never attempt to monopolize the Internet or they will become everyone’s enemy rather than partner.

The way I see it, Google will use Yahoo as an outlet or a branch to sell it’s ads. Yahoo is useful to Google in that way. Leave Yahoo as it is, allow them to operate on their own and maintain its users and community and sell the ads to them. Why kill the goose that lays the golden egg right?

And lastly Yahoo. I envy the position of Yahoo now because they are in the middle choosing who between two suitors should they say yes to. Microsoft teaming up with Icahn is a not so attractive tandem for me especially when the two attempted to remove the current board. It’s literally a takeover. How Microsoft will run and control Yahoo is still a question.

The bottomline – this is not about providing a better service to the online consumers – its business to all the parties involved. One trying to outdo the other. With competition taken to a new level, Yahoo needs to reassess its strategy – can they do it alone or do they need a partner? If it’s the later – will they be better off with Microsoft or Google?

If Yahoo decides to do it alone, why don’t Google merge with Microsoft or Microsoft buying Google? Will it work? I don’t think so. But who knows right?

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