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With advertisers like Martin Sorrell lining up to welcome Wednesday’s Microsoft/ Yahoo search pact, it might seem churlish for regulators to take a long hard look at the alliance. But that is exactly what they’re going to do - and there’s certainly no assurance that the deal will get the green light.
The babyfood business in the US provides the biggest warning sign. Back in 2000, Gerber controlled around two thirds of the US market for jarred babyfood - not that different from Google’s 77 per cent share of US search advertising, according to Microsoft’s figures.
But when the second and third players in the market, Heinz and Beech-Nut, tried to get together, the Federal Trade Commission had something to say about it. The regulators sued to block the deal and, after losing in a lower court, won on appeal. If that precedent looms large in the US, Microsoft faces the added hurdle in Europe of a regulator that has already shown itself ready and willing to fight.
When I put this to Brad Smith, Microsoft’s general counsel, he had this to say:
This is really about going from one to two when it comes to having long-term sustainable competition in the search marketplace. Neither Microsoft nor Yahoo alone could look at a future over the next decade with the kind of ability for sustained profitable competition that this now gives us the opportunity to create.
A second consideration that Microsoft is likely to lean on is the broader aggressive competition with Google. Smith again:
The biggest concern that anti-trust authorities have had in markets where there are two competitors is that there might be collusion between those two. In the leading US cases, that has been a concern. I don’t know of anyone who thinks there is any possibility that Microsoft and Google would collude about anything. We are obviously in a very competitive market across the board and we are going to continue in that dynamic.
Will these arguments carry the day over the Gerber principle?
Microsoft may find sympathy hard to come by. It has the resources to keep fighting for a long time in this market, and has already demonstrated its tenacity.
At least this time around Microsoft won’t have to face the all-out hostility it saw from Google when attempting a full acquisition of Yahoo last year. Google would be hard-pressed to argue against a deal that looks very similar - only much smaller - to the one it tried to reach with Yahoo itself last year, and which it still stands by publicly. But you can rest assured it will be doing everything it can behind the scenes to put a spanner in the works.
David Gelles, Joseph Menn, Chris Nuttall and Richard Waters in the FT's San Francisco bureau upload their views - plus tech insights from writers in New York, London and Tokyo
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