Google calls antitrust on Microsoft-Yahoo bid

Microsoft quickly responded to Google Inc.’s chief legal officer Monday over the first shot of what will likely be an antitrust salvo at Microsoft Corp. over its unsolicited US$44.6 billion bid for Yahoo Inc.

Saying that the offer “raises troubling questions” about Microsoft’s moves and arguing that a deal might threaten the “underlying principles of the Internet: openness and innovation,” David Drummond, Google’s chief legal officer, explicitly laid the antitrust card on the table.

“Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?” Drummond asked in a post to Google’s corporate blog on Sunday.

“While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies — and then leverage its dominance into new, adjacent markets.”

In a statement released about 90 minutes after Drummond’s post went live, Microsoft’s chief counsel, Brad Smith, shot back, saying that a Microsoft-Yahoo merger would “create a more competitive marketplace,” not stymie competition.

Drummond cited instant messaging (IM), Web-based e-mail and portals as areas of concern. “Microsoft plus Yahoo equals an overwhelming share of instant messaging and Web e-mail accounts. And between them, the two companies operate the two most heavily trafficked portals on the Internet,” Drummond claimed. “Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors’ e-mail, IM, and Web-based services?”

But those numbers bear more objective examination. According to data from comScore Media Metrix, a combined Microsoft and Yahoo would be the No. 1 Web property. Together, the two companies in December attracted 1.02 billion visitors, nearly double Google’s 588 million visitors during the same month. However, Google has the lion’s share of the search market; comScore’s most recent numbers peg Google’s worldwide share at 62 per cent and a combined Yahoo and Microsoft at 16 per cent.

Google has brought up antitrust issues before when it thought that Microsoft was trespassing on its turf. In late 2006, for instance, it complained to the U.S. Department of Justice that Windows Vista’s integrated desktop search “violates its agreement with the government and hurts consumers.” Google argued that Vista did not let users choose an alternate search engine, presumably Google’s own.

In June 2007, Microsoft conceded the point in a deal with the Justice Department and other antitrust regulators and promised that it would open Vista to other search engines as of Service Pack 1 (SP1). That update is expected to appear soon, perhaps as early as Monday.

Microsoft responds

Microsoft reacted quickly to Drummond’s comments. Smith, who on Friday had named Google as the one company prevented by antitrust concerns from bidding on Yahoo, said a Microsoft-Yahoo merger would boost competition. “The combination of Microsoft and Yahoo will create a more competitive marketplace by establishing a compelling No. 2 competitor for Internet search and online advertising,” he said. “The alternative scenarios only lead to less competition on the Internet.”

Smith cited search statistics, saying that Google “is the dominant search-engine and advertising company on the Web.” According to Smith, Google has 75 per cent of paid search revenues worldwide.

“Microsoft is committed to openness, innovation and the protection of privacy on the Internet. We believe that the combination of Microsoft and Yahoo will advance these goals,” Smith concluded.

Even before Smith’s counter on Sunday, Microsoft executives had pegged competitive issues as one of the main reasons for its Yahoo offer. Friday, in both a press release and in a letter to Yahoo’s board from Microsoft CEO Steve Ballmer, the company said that the online advertising market is “increasingly dominated by one player,” referring to Google, but not actually naming the rival. “Together, Microsoft and Yahoo can offer a competitive choice while better fulfilling the needs of customers and partners,” Ballmer said.

On Friday morning, during a Q&A with financial analysts and reporters, Smith noted Google’s special position as the one company which he thought could not make an offer for Yahoo. “Any number of companies might take an interest [in Yahoo]. I think there is really one company that cannot. That is Google itself. Given that Google has roughly a 75 per cent market share worldwide for online page search, they are not in a position to do this. Given its super dominant market share, Google is clearly prevented by the antitrust laws from buying Yahoo or buying this business from Yahoo.”

For his part, Drummond hinted that Google would fight the Microsoft-Yahoo merger on antitrust grounds. “There is plenty of time for these questions to be thoroughly addressed,” he concluded. “We take Internet openness, choice and innovation seriously. They are the core of our culture. We believe that the interests of Internet users come first — and should come first — as the merits of this proposed acquisition are examined and alternatives explored.”

On Friday, a spokesman for the European Union’s Competition Commission declined to comment on any action it might take, noting that it was up to the bidding company — in this case Microsoft — to ask for approval. The Department of Justice, meanwhile, was quoted in several news reports Friday as saying that it was interested in scrutinizing the deal on antitrust grounds.

“The antitrust division would be interested in looking at the competitive effects of the proposed transaction,” DOJ spokeswoman Gina Talamona told several outlets Friday, including the San Jose Mercury News.

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