Do you mind if we pucker up and blow our own trumpet for a second? Last May, we reported talk that Microsoft may be working on a bid for Yahoo. Microsoft, we said, seems to have no answer to Google, which was why a purchase of Yahoo could be just the company’s panacea.
Well, last Friday it was official. For that was the day when the world’s largest software company put its hands in its pockets, pulled out $44bn, and left it there on the table as an offer to buy the company with the world’s most popular web site.
It’s quite surprising, but Yahoo is still the most visited site on the Internet. The snag, though, is that Yahoo’s area of strength is not in the area where the money is. Instead, the bucks are with search. And you can see why. The strength of the Internet is that it allows advertisers to target their ads in a way that wouldn’t have been possible before. You sponsor a key word on Google, and you know that the people who click on your ad will already have typed a word into Google that you consider to be relevant to you.
This idea is not new to Yahoo. In fact it was offering customers the opportunity to sponsor searches even before Google, It’s just that in the battle to dominate search, Google has been walking all over Yahoo.
It’s shown up in the bottom line. Last week, Yahoo announced its latest quarterly results. Profits in its fourth quarter were not merely lower than its profits in the same quarter a year ago, but actually it even raked in more bucks in the fourth quarter two years ago too.
In fact Yahoo has now announced four successive falls in year-on-year quarterly profits.
Back in the fourth quarter of 2003, Yahoo’s profits were 2.7 times greater than Google’s. But within a year, Google had caught up. But, in the latest round of quarterly profits, Google’s profits came in at $1.2bn – no less than 5.8 times greater than Yahoo’s.
No wonder, then, that Yahoo is looking anxious. Its CEO, Jerry Yang, was appointed last year, but really, in making Yang the boss, the company was doing little more than an attempting to recapture past glories. For Yang also happened to be one of the company’s founders.
Then, there’s Microsoft. Sure, its latest profits came in at $4.71bn, dwarfing even Google’s profits, but then this does not quite tell the tale of the dominance it is used to. Three years ago, for example, Microsoft was making ten times more money than Google, Yahoo and Apple combined. Now, the ratio is more like two to one.
But what is really quite interesting about the whole saga, is the way many people seem to be portraying Microsoft and Yahoo as little more than two Davids coming together to take on the mighty Google.
Blog entries across the Internet are full of comments such as “down with Google”, while Google is seen by many as the home of the new evil empire.
Microsoft, for so long the whipping boy, for so long on the losing side of antitrust cases, and for so long seen as the evil empire, to be jeered at with every opportunity, is now the hero of the piece.
And even if Microsoft was to buy Yahoo, the new company’s share of the search engine market would still be around half of Google’s share. (And by the way, there would hardly be any pickings left over for anyone else – at least that would be the case in the US.)
But not everyone sees it in those terms. Not everyone sees Google, the company whose motto is “Don’t do evil”, as the bully.
Here is one argument put forward against the Microsoft–Yahoo coming together. One industry expert said the merger “raises troubling questions” and asked “could the acquisition of Yahoo allow Microsoft – despite its legacy of serious legal and regulatory offences – to extend unfair practices from browsers and operating systems to the Internet?”
So at last, Google has an ally. Well, alas not so. For the person who made those comments was David Drummond, Google’s senior vice-president for corporate development and chief legal officer.
It seems, though, this battle will come down to who the authorities are most worried about. Are they most worried about Microsoft’s strength, or do they see it as essential that Google is given tougher opposition?
The truth is, in the battle for Internet dominance, it is essential that there is no clear winner. And in choosing whether to allow the Microsoft–Yahoo merger, the authorities will really be looking at which company they consider to be the lesser of two evils.
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