February 12, 2008 | posted by Michael Baxter in New Media |

And from things that lurk in the dark places of the earth, to evil empires.

As you know, Google has this motto, “Don’t do evil” – and yet in this era of Google-dominated search engine advertising, an era in which the advertising bucks sit with the companies which know the most about us – Mountain View California seems to be taking on the air of Mordor.

The likes of Microsoft and Yahoo, on the other hand, are increasingly looking as if they are a forlorn force of lightness, if you like, a fellowship, desperately trying to break the ring of Google’s domination.

But when forces come together to take on a common enemy, the union is not always so sweet.

A year ago, Microsoft and Yahoo had flirted with the idea of a merger. In fact, back during the latter days of 2006 and early 2007, the bosses of the two companies put their heads together – but at the time Yahoo said, “Now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction.”

At least that’s what Microsoft claimed when it made its offer to Yahoo last week. In its letter to Yahoo detailing its offer, Microsoft referred to this previous rejection. Yet once again, yesterday, Yahoo rejected its suitor.

Yahoo said the Microsoft bid “substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential as well as our substantial unconsolidated investments”. And it said it “carefully reviewed Microsoft’s unsolicited proposal . . . and has unanimously concluded that the proposal is not in the best interests of Yahoo! and our stockholders”.

If these two companies were to come together, there is little doubt who the yang would be to Microsoft’s yin. For Yahoo boss, not to mention co-founder, is Jerry Yang, and yesterday he told staff at the company he heads, “The global online advertising market is projected to grow from $45bn in 2007 to $75bn in 2010, and our more-focused strategies position us to capture an even larger share of this market…Our global brand is a tremendous base from which to build leadership as the starting point for Internet use: Yahoo is one of the most recognisable brands in the world. We have some 500 million users (one out of every two Internet users worldwide). In the US we are number one in personalised home pages, mail, music, news, sports, shopping and travel.”

And yet, robust though this defence was, the fact is, Microsoft’s $40bn offer valued Yahoo shares at $31 a share, that is 62 per cent up on the share price before Microsoft’s overtures were first made.

Yahoo’s performance has not been so good of late – during the last eight quarters, year-on-year profits fell no less than seven times. In the last quarter, profits at $206m were not only lower than in the same period the year before, they were lower than the year before that, too.

Shareholders in the company must find this a tad frustrating – and while Mr Yang is making lots of noises about big plans, the company seems stuck in the slow lane of growth – at least in comparison with other dotcom firms.

It seems that a merger with Microsoft will at least create a company with a good chance of taking on Google.

In this case, however, neither the eyes of Google, Yahoo or Microsoft can see that far.

Google’s rise to power has been extraordinary – but it can reverse – who knows what other companies are out there sitting on new ideas which will enable them to jump in. And let’s face it, as Google, MySpace and Facebook have all shown, this is an industry that, for companies with the right product, has very low barriers to entry.

Mount Doom exists in all companies. According to a study carried out by the economist L Hannah in 1999, of the 100 largest US firms in 1912, 29 had by then gone bankrupt, 48 had disappeared, and just 19 of them were still in the US top 100. And that was over a relatively short time frame.

History appears to tell us that most of the world’s firms fail eventually – but for companies operating in the field that Yahoo, Google and Microsoft call their own, failure is likely to be more-rapid.