It's not exactly a secret that the Big Three search engines have never been on the most friendly 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! is just that - maintaining an outwardly professional outlook whilst fighting tooth and nail to claw percentile points back to your own team.
But not so recently - the enmity between Google and Microsoft has been growing palpably. First of all there was Google's acquisition of DoubleClick, which led to Microsoft denouncing the deal as anti-competitive as it would give Google unprecedented control over the online advertising market. In light of the recent Yahoo! takeover bid, however, Google has hit back with exactly the same charge.
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.
In an official Google blog post, David Drummond, a Google senior vice-president, stated:
"This is more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the internet: openness and innovation. While the internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies - then leverage its dominance into new, adjacent markets."
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.
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 the 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.
The question is, will these shareholders consider the Microsoft deal or the Google alliance the optimal path? In the short term, the deal values Yahoo! shares at substantially over market value - 62% higher than their market value at the close of play last week. This would provide shareholders with a huge payoff and leave them scarcely able to believe their luck, given that Microsoft are one of the only companies with deep enough pockets to raise the necessary $43 billion for a buyout.
On the other hand, Microsoft is likely to set in motion a massive restructure of the company, by potentially selling off the still highly profitable Yahoo! Japan area (Yahoo! tends to perform much better in Asia than the US and Europe), merging the search divisions and laying off 3-4000 staff members. Additionally, the software giant could sell off other Yahoo! business interests, including its share in the Chinese search portal Alibaba.com.
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.
This strategy has worked before - Microsoft's wealth is so large that the entire Xbox division did not make any money for almost five years before finally starting to beat Sony and establish dominance in the marketplace. Yahoo! certainly does not have this luxury or this amount of cash in hand to compete with Google - so, right now, it's either sink or swim for this search engine pioneer.
