Google Tries to Turn Microsoft's Yahoo Pursuit to Its Advantage

The ironies keep piling up, but Google’s blog post today about Microsoft’s unsolicited bid to buy Yahoo looks to me like a smart chess move by the search giant. In the statement on the official Google blog, Chief Legal Officer David Drummond says the “hostile” bid (not sure it qualifies as hostile until Yahoo turns it down) “raises troubling questions” about whether Microsoft will turn its old monopolistic tricks to the Internet.

Which is ironic, because although Google is nowhere close to being considered a legal monopoly online, or even in online advertising, it certainly is dominant. And it’s using that dominance to try to move into new areas beyond search and search ads, from online display advertising to software as an online service.

And that’s not the first example of irony. Microsoft has been telling every antitrust official around the globe that Google is too powerful, helping to leave Google’s $3.1 billion proposal to buy display-ad serving firm DoubleClick in regulatory purgatory, first in the U.S. and now in Europe.

Now, Google’s using Microsoft’s bid for Yahoo as a way to plant fears of the old Microsoft—and, not least, try to take the pressure off its own regulatory challenges. I don’t know if it will work, but whether it’s a valid concern or not, it’s a savvy move by Google at a time when Google’s power is starting to work against it.

At the same time, the unusual appearance of such a statement, coming so soon after the bid was announced, indicates that Google is taking it very seriously. I and a lot of other people think such a deal would do little more than give Google more running room for the next year or two as antitrust and massive internal consolidation groans on. That’s why I think Henry Blodget’s suggestion today that Yahoo cofounder and CEO Jerry Yang try to persuade Microsoft to do a less sweeping linkup makes much more sense. (Though that doesn’t mean either company will take his advice. I don’t think Microsoft will back down, for one, and I don’t know that a semi-independent Yahoo will do any better than it has on its own.) But even if the blog post is a ploy to ease its own antitrust battles, the speed with which it responded would seem to indicate that Google believes this could be a potent competitor eventually.

I wondered if Google was just using the apparent threat, which actually isn’t much of one in the short term, as a way to push its DoubleClick deal through and keep regulators off-balance. But the Journal reports tonight that Google CEO Eric Schmidt called Yang Friday with an offer to help Yahoo fight the Microsoft takeover, either helping other bidders financially or taking over all or part of Yahoo’s search advertising for a lucrative fee. That seems to indicate Google views the Microsoft-Yahoo combination as a real threat.

Full text of the Google statement after the jump…

Yahoo! and the future of the Internet 2/03/2008 11:45:00 AM Posted by David Drummond, Senior Vice President, Corporate Development and Chief Legal Officer

The openness of the Internet is what made Google -- and Yahoo! -- possible. A good idea that users find useful spreads quickly. Businesses can be created around the idea. Users benefit from constant innovation. It's what makes the Internet such an exciting place.

So Microsoft's hostile bid for Yahoo! raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: openness and innovation.

Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC? While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies -- and then leverage its dominance into new, adjacent markets.

Could the acquisition of Yahoo! allow Microsoft -- despite its legacy of serious legal and regulatory offenses -- to extend unfair practices from browsers and operating systems to the Internet? In addition, Microsoft plus Yahoo! equals an overwhelming share of instant messaging and web email accounts. And between them, the two companies operate the two most heavily trafficked portals on the Internet. Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors' email, IM, and web-based services? Policymakers around the world need to ask these questions -- and consumers deserve satisfying answers.

This hostile bid was announced on Friday, so there is plenty of time for these questions to be thoroughly addressed. 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.

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