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Will Kroes get to sort out Silicon Valley’s tangled Web?

February 4, 2008 11:59pm
by Richard Waters

Neelie_kroes The Microsoft-Yahoo-Google tangle might end up making more money for the lawyers than it does for the investment bankers. It’s difficult to see any White Knights riding to Yahoo’s rescue, despite the rumours that have been swirling (As one tech banker says: "There’s one buyer, one target, and 300 investment bankers here all spinning their wheels.") But the regulatory morass should at least be good for the lawyers, and might well end up putting European competition commissioner Neelie Kroes in the hot seat.

Google and Microsoft have both started levelling anti-trust accusations, but what does all the mud-slinging add up to? These are the main issues at stake:

Microsoft eliminates a competitor in search advertising. Combining the number two and number three suppliers in any market tends to produce a knee-jerk reaction from regulators. It led the Department of Justice to try to block Oracle’s bid for PeopleSoft, though that software deal finally got done. In this case, the market is so heavily tilted towards Google that Microsoft’s argument for the competitive benefits of creating a stronger number two may well win the day, and advertisers and publishers are certainly not lining up to complain about the idea.

Microsoft becomes too powerful in Web email, IM and portal services. Google’s claim that a "horizontal" merger of Microsoft and Yahoo’s services in these areas would threaten the Web is "comical", says another veteran Valley deal-maker. Steve Ballmer claims that Microsoft’s share of consumer email is less than 20 per cent even in the US, where the two companies are strongest, and the Web 2.0 and mobile worlds have brought many new methods of communication, from social networks to texting. Hotmail and the Yahoo home page still draw a big audience, but search is the new entry-point to the Web.

Microsoft uses its desktop monopoly to dominate Web services. This is Google’s other complaint: that Microsoft could use Windows or its IE browser to steer users to its own Web services. That may be theoretically possible - but it has been possible for years, even without a Yahoo acquisition, and Microsoft’s potential abuse of its PC monopoly in this way is something that has been under the scrutiny of regulators for years.

Google monopolises search advertising. This was Microsoft’s counter-claim today: that allowing Google to take over the running of Yahoo’s search advertising would leave it with a virtual monopoly over the fastest-growing and most important part of the online ad business. Does Google really want to risk raising that particular question just as Ms Kroes closes in on a decision about its acquisition of DoubleClick?

February 4, 2008 11:59pm in Internet | Comment

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