June 25, 2008 | posted by Michael Baxter in New Media | comments (1) |

It is difficult to think of more a formidable product in the consumer electronics arena than the iPhone.    It combines Apple’s superb knack for design, a proper Internet browser,  the iPod, the video iPod, and one more thing, what was it? Yes, that’s right, a mobile phone.

Can you think of a product, or a company, that could possibly outgun Apple’s iPhone?  Well, how about this one: Microsoft; keen to promote its Windows operating system onto mobile phones, and is prepared to put an awful lot of bucks behind it.   Microsoft’s’ big advantage over Apple, is that its operating system is for all.  It is not a proprietary product like the iPhone.  So Apple might have the coolest piece of kit in the world, but can it really take on everybody?

But even Microsoft has got its work cut out. How about this for formidable opposition?  Google, the world’s most valuable brand.  Google isn’t all about a specific phone either; like Microsoft, it’s a standard it wants.  It wants the world’s consumer electronics makers to make phones supporting its standard.   Google has one big advantage over Microsoft, it gives its operating system away for free.  And what is more, its operating system is Linux based.

What’s good about Linux is this: it is an evolving product.  There are hundreds, maybe thousands, of programmers out there working on Linux features – only the best are accepted. 

Google, of course, has the big advantage that it makes money on advertising, so it has a wonderful business plan; give the product away for free, and still make billions of dollars.

So that’s the three titans then: Apple, Microsoft and Google.   There’s a fourth player, little old RIM with its Blackberry.  Such is the following this product has that it is a possibility it will win out, but surely it is more likely to get drowned by the cacophony from the big three.

But, wait a moment.  Did you hear that?  There’s another tune playing, and this one could even outgun the west-coast of America trio: for the fifth player is made up of Nokia, Vodafone, Sony Ericsson, Motorola, NTT DOCOMO, AT&T, LG Electronics, Samsung Electronics, STMicroelectronics and Texas Instruments. That is a group which must have even Microsoft and Co quaking.

Mind you, it all boils down to Nokia, really. For the Finnish company has bought out Symbian Limited, the mobile phone operating system initially launched by Psion. Why buy it out? Well, Nokia wants to turn Symbian software into a kind of Linux basher – free, open and everywhere.

This is what Nigel Clifford, CEO of Symbian, had to say: “Ten years ago, Symbian was established by far sighted players to offer an advanced open operating system and software skills to the whole mobile industry.  Our vision is to become the most widely used software platform on the planet and indeed today Symbian OS leads its market by any measure. Today’s announcement is a bold new step to achieve that vision by embracing a complete and proven platform, offered in an open way, designed to stimulate innovation, which is at the heart of everything we do.”  Ummm, heavy stuff.

Nokia says that mobile devices based on Symbian OS account for 60 per cent of the converged mobile device segment, and to date, more than 200 million Symbian OS based phones have been shipped, over 235 models, from 8 vendors and on more than 250 mobile networks around the world.  More than 4 million developers are engaged in producing applications for Symbian devices. 

Or to put it another way, Symbian has got off to a good start.

It all smacks a little of Isaac Asimov, because Nokia has started talking about a Symbian Foundation, made up of all those formidable players listed above. “Establishing the Foundation is one of the biggest contributions to an open community ever made,” said Olli-Pekka Kallasvuo, CEO of Nokia. “Nokia is a strong supporter of open platforms and technologies as they give the freedom to build, maintain and evolve applications and services across device segments and offer by far the largest ecosystem, enabling rapid innovation. Today’s announcement is a major milestone in our devices software strategy.”

It is an interesting thing but Nokia wasn’t always like this.  Time was when it was a manufacturer of gun boots.  Its decision to diversify seems to have paid off handsomely.  Now it is gunning for the world – or at least gunning to stop dominance by any of the big three US firms.

Joseph Schumpeter, the Austrian economist who was Keynes’s main rival for the epitaph of greatest economist of the 20th century, used to talk about Great Gales of Creative Destruction.  Schumpeter was a fan of monopoly.  He used to say only a monopoly, or a company with designs to become a monopoly, has the money to innovate in the modern world.  But, he said, monopolies fall, in waves of creative destruction.

Microsoft is an obvious example of a monopoly under threat from this new wave of creative destruction.

To the victor goes the spoils of becoming a new monopoly.  The thrills of dealing with anti-trust regulation, and the challenge of fending off the next wave of creative destruction.

May 30, 2008 | posted by Michael Baxter in New Media | comments (2) |

Failure, as we pointed out last week, is the norm in business. Of the top 100 firms in the United States in 1912, by 1998, 29 had gone bankrupt, 48 had disappeared, and a mere 19 still occupied positions in the top 100. This is not a bad thing, per se – in fact it could be argued we need failure, in just the same way that biological evolution needs failure. Think of it this way, before evolution threw up the cat called the leopard, there was a myriad of different mutations, countless experiments – before natural selection finally came up with Africa’s spotted big cat. Without the failures there couldn’t have been successes.

The same idea applies to economics too. If Keynes has a rival to his epitaph of greatest economist of the 20th century – then his rival’s name is Joseph Schumpeter, who, among his many ideas, promoted the concept of creative destruction.

In fact, Mr Schumpeter went a little further – he coined the phrase “gales of creative destruction” – we need new ideas, new experiments – most of which will fail; we need new ideas that will lead to the failure of old and established ideas, in order to move forward.

But it seems reasonable to assume that companies operating in technology, will see a gale of creative destruction blow like no business wind has blown before. It will be even harder, one assumes, for the big technology giants to survive for more than a few decades, than it was for the corporate giants of yesteryear to survive the trials of the 20th century.

The most spectacular fall from grace was the East India company – the world’s largest business in the 18th century – yet in 1873, it went out of business.

Which mega companies operating today could go the way of the East India company? It seems certain the world of technology will see spectacular failures – the big question then, must be, will Microsoft be such a company?

Last week, Microsoft announced it was to open up the source code on some of its software. It was an important announcement. Of course, there is no shortage of cynics. For the boys and girls who develop in the arena of open source software, the Linux brigade, Microsoft is an evil empire – and anything it does will be met with derision.

And it is true to say that the Microsoft move doesn’t go that far. It will mean that third party developers will be able to view the source code that allows different Microsoft tools to communicate with each other – so, theoretically then, it will make it easier for third parties to ensure their products are compatible with Microsoft products.

Was this a Road to Damascus conversion – is Microsoft seeing the light and set to join the world of open source software – or was it merely trying to placate EU regulators?

Maybe the answer is that Microsoft was doing both – and is doing a lot more besides, because in order to survive moving forward, the company has to experiment. It has to ensure gales of creative destruction run through the business, all the way through, because if it doesn’t, the firm will go the way of the smilodon.

Just for a moment, consider how Microsoft came to dominate the world with its Windows applications.

In 1987 the company had a massive dilemma. It had enjoyed a good run, thanks to DOS, but the world was ready for change, and the industry was alive with competitors, many much larger than Microsoft, wanting a slice of the action.

Eric Beinhocker tells the story well in his book “the Origin of Wealth.” “We can imagine the options that Microsoft faced at this point,” he says. “Option one, Gates could make an enormous ‘bet the company’ gamble by building a new operating system called Windows and attempt to migrate his base of DOS users to the new standard, ideally before a competitor would reach critical mass with its own system. Option two, he could exit the operating system part of the market, cede that to his larger, better-funded competitors, and instead focus on applications for which Microsoft’s small size and nimbleness might be more of an advantage. Or option three, he could sell the company or otherwise team up with one of his many competitors.

“The conventional wisdom is Gates chose option one, and the big bet paid off…. But that is not what happened. What Gates and his team did was much more interesting – they simultaneously pursued six strategic experiments.”

In fact, Microsoft put more resources into DOS, it entered into a relationship with IBM for the development of OS/2, it held discussions with third parties for products aimed at the Unix market, it bought a big stake in a seller of Unix systems, created software for the Apple market, and of course invested in Windows.

At the time, the company was lambasted in the press for being inconsistent – for having no strategy – in reality it was just opening itself up to internal gales of creative destruction.

Now it faces a similar challenge. Should it continue to experiment? Windows was, for many people similar to the Apple system of that time – maybe, then, we should take a look at what Apple is doing now. The latest all-singing and dancing Apple product is called Leopard – maybe it needs to change the spots on the software a tad, and produce its own version.

Of maybe it should act like a venture capital firm – sitting there, with its huge pool of resources and user base, wait for the next big idea and dive in, use its muscle, and buy the idea?

One thing is for sure – more than one idea is required. Maybe Microsoft does need to change its habit of a lifetime and move out of proprietary software – to change, as it were, its spots.

Maybe, though, the answer is something else.

To survive, Microsoft must change its spots, keep them, grow a mane, a long neck, and learn to hunt in packs – all at the same time. One of those strategies will work, it is just not certain which one.

May 19, 2008 | posted by Michael Baxter in New Media | comments (0) |

Microsoft has got its fair share of problems, but right now it must be nice to be Steve Ballmer, the company’s CEO.     He made his offer, played true to his reputation of adopting a somewhat confrontational approach to business, and then just sat on the wings while Yahoo’s shareholders seemed to collapse into a kind of corporate equivalent of civil war.

On the one hand you have Jerry Yang, Yahoo’s boss, not to mention co-founder.    Yahoo is his baby, and it does appear, at least from the sidelines, that he is having that age old problem which afflicts all parents, he is not good at letting go.

Then again, when Microsoft turned away from their negotiations with Yahoo, after Yahoo asked for more money than its suitor had offered, Yang said, “We did not say it was a take-it-or-leave-it number in the sense that we would never negotiate any more… We were totally willing to do a transaction, and they walked away.”

On the other hand we have the rebels.    Just under two weeks ago, when the negotiations between the two companies broke down, some shareholders in Yahoo were furious.

The problem was this.  Microsoft offered $33 a share for Yahoo, and after the deal collapsed so did the share price.  Legg Mason, the second biggest shareholder in Yahoo, said that the company should now compensate shareholders for the fall in share price. It wants to see the company buy back shares. “It would be almost incoherent not to do so,” or so the Guardian quoted a spokesmen for Legg Mason. “You can’t maintain that $33 undervalues your company, have your stock trade below that and not buy back stock.”

But Ballmer said that it was all over, Microsoft had no more interesting in buying Yahoo – it was curtains for the deal.

And it was in this environment of shareholder discontent, and Ballmer’s apparent loss of interest – or perhaps feigned lack of interest, that Carl Icahn stepped into the breach.

Mr Icahn is one of those men who seems to have a permanent prefix to his name – in his case, it’s “notorious.”  He is notorious for his corporate raiding, and former bosses at Marvel Comics, Motorola and Time Warner will all testify to that.   With a personal fortune of around $14bn, he has got deep pockets too, and he clearly smelt money at Yahoo.

So he barged in on the dispute, bought himself a stake in the company worth around 2.5 per cent of the business and revealed plans to put his own board in charge. 

His management team would have, it appears, one brief – sell the company.

But who would want to own Yahoo?  Surely, this is not the kind of company private equity would want – so that leaves a business operating in a similar field – so that’s ah, Google, Microsoft or perhaps News Corp.

A merger with Google really would get the anti trust regulator’s goat, and News Corp has apparently nailed its colours to the mast in the Microsoft camp.

So if Icahn is successful, it will presumably be tantamount to lying back and saying to Microsoft, “Take me, darling.”

And throughout it all, Microsoft’s boss has maintained his poker face.

But then yesterday, Ballmer gave some ground.  “Microsoft is considering and has raised with Yahoo an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo.”  The official comment goes on, “Microsoft is not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo or discussions with shareholders of Yahoo or Microsoft or with other third parties.”

The whisper says Microsoft is interested in buying Yahooo’s search engine.  Strange, because not so long ago Steve Ballmer said Yahoo had limited value without its search engine – so why Yahoo would agree to that latest offer is unclear.

What is not unclear is this.  Ballmer, by adopintg his take it or leave it approach, is winning this batttle.

Microsoft needs Yahoo; in combination with Yahoo, and perhaps with News Corp’s My Space thrown in, it may even be able to take on Google.      And Microsoft has got the cash too.

But right now, Ballmer must be watching the conflict at Yahoo with a kind of wry satisfaction.  

PS on May 6 we said “There is only one company in the world that can compete with Google and that company is called Microsoft. Only as a part of Microsoft, can Yahoo hope to have a viable model in the long-term. Microsoft surely knows this, and will surely be back – but when it does return, it will be laying a lot less money on the table.”  We don’t want to say told you so, but…

May 6, 2008 | posted by Michael Baxter in New Media | comments (2) |

And the man from Microsoft, he said “no.” And so that’s it, at the end of last week Microsoft walked away from the deal with Yahoo. Silly old Yahoo, it stuck out for too high a price. Microsoft had warned it was getting impatient, and so it was.

In the end it came down to just a few dollars. Microsoft upped its offer to $33 a share, from $31, Yahoo said it wanted $37, and the giant software company walked. Okay, the difference between $33 and $37 dollars might come down to around $5bn or so, but the two companies were in the same ballpark.

Yahoo’s shareholders are furious. Shares in Yahoo went crashing, falling back to $24, or so, and some are talking about suing the company. Legg Mason, the second biggest shareholder in Yahoo said that the company should now compensate shareholders for the fall in share price. It wants to see the company buy back shares. “It would be almost incoherent not to do so,” or so the Guardian quoted a spokesmen for Legg Mason. “You can’t maintain that $33 undervalues your company, have your stock trade below that and not buy back stock.”

And yet, look a little deeper, and a somewhat different picture emerges. This is what Yahoo CEO Jerry Yang said, “We did not say it was a take-it-or-leave-it number in the sense that we would never negotiate any more,” said the yang to Microsoft’s yin, and added, “We were totally willing to do a transaction, and they walked away.”

Analysts voiced surprise that the two companies were unable to do a deal, when they were so close. And yet, from another point of view, you can argue that Microsoft’s strategy has been totally predictable – and they are in fact playing their cards like a master poker player.

Microsoft’s Chief executive Steve Ballmer is known for his somewhat …, how can we put it, somewhat confrontational approach. Earlier last week he had warned that if Yahoo didn’t accept the offer, he might lower the price. Rumours suggested he was trying to elicit support from Yahoo shareholders. The truth is, Yahoo had been losing its battle. Google seems to be trouncing it at every stage. And then it resorted to canoodling with Google, getting its arch rival to sell some of its advertising. In the long-term, this is a risky strategy. Yahoo was an early investor in Google – and helped the company grow. In the end it turns out that Google was like a cuckoo in the nest, proving far too much of a handful for its earlier mentor.

But Yahoo has not learned from that lesson. Yet antitrust regulators will almost certainly stop the two companies ever coming together. A merger with AOL is on the cards – but, frankly, so what?

There is only one company in the world that can compete with Google and that company is called Microsoft. Only as a part of Microsoft, can Yahoo hope to have a viable model in the long-term. Microsoft surely knows this, and will surely be back – but when it does return, it will be laying a lot less money on the table.

April 23, 2008 | posted by Michael Baxter in New Media | comments (0) |

“Well, if a picture can paint a thousand words then why can’t it paint you?” said Microsoft when it was trying to woo Yahoo, and spoke sweet nothings in its ears.   Then this morning, Yahoo could respond by saying, “Look at this picture, and you can see why.”

Yahoo’s profits have soared – trebling to $542 million in the quarter just gone. If you want me, it can now say, well, you are going to have to up the price.

Yet, not so fast.  The profits were lifted by a $401m gain from the sale of its stake in Alibaba.com, the Chinese dotcom star.

And once you take that into account, Microsoft’s offer looks like it could be on, after all.

The yang to Yahoo’s yin, is its chief executive Jerry Yang, who said, “Our board and management team continue to be open to any and all alternatives, including a Microsoft deal.”

Microsoft had previously given Yahoo until this Saturday to make up its mind – after that point, warned the Microsoft boss, Steve Ballmer, the offer may be decreased in value.

The latest results are good enough for Yahoo to feel it may be able to call Ballmer’s bluff, but not good enough to put the potential deal off altogether.

Talk is that Microsoft may be teaming up with News Corp in the purchase of Yahoo – so with My Space thrown into the pot, that will make a mighty Internet empire indeed.

Yahoo’s other option seems to sit with a takeover of AOL, in combination with some kind of advertising tie-in with Google.

April 18, 2008 | posted by Michael Baxter in New Media | comments (0) |

It was another stonker for Google. As a result, Microsoft was left cursing, and comScore, the company that provides the definitive statistics on internet advertising in the US, was left with egg on its corporate face.

Profits at the company were up again, this time 30 per cent higher than in the first quarter of 2007, hitting $1.31 billion, a new quarterly record for the company.

Much of the success was down to overseas expansion, with 51 per cent of sales coming from overseas. Mind you, the dollar is down sharply from the euro a year ago.  Last March for example there were around 0.75 euros to the dollar, yesterday there were 0.62.   In fact, Google says the falling dollar had the effect of boosting sales by around $202 million.   So that helped. Then again, total sales jumped 42 per cent to $5.19bn, so even if the dollar had stayed flat, the company would still have enjoyed strong growth.

In fact, the UK is one of Google’s most important overseas markets, and the pound–dollar ratio has not actually changed that much over the time period.

Of course, all those who laughed at Google’s apparently astronomical share price when it was floated don’t look so smart now.    At the time memories of the dotcom crash returned   The cynics argued the share price was grossly overvalued. Yet it appears they were wrong.

The company was floated in August 2004, with a launch share price of $85, giving it a market valuation of around $30bn.  Yet even if the company stops growing, and just matches the Q1 performance for the rest of this year, it will make a total profit of $5 billion in 2008, or a healthy sixth of its valuation four years ago.

The trouble is, of course, the share price has risen sharply since then.  Shares are now trading at $442, so they are up slightly more than fivefold.     Profits have increased 25-fold since the quarter when the company was first listed.    So profit growth has greatly exceeded growth in the share price.  Even so, the company is now valued at $140 billion.  Analysts say its valuation expressed as a ratio of predicted future earnings – that’s its p/e ratio, is now around 34.   So the share price is still high, but easily justified if the company can continue its rapid growth for another couple of years.

So the question then is, how much will the global economic outlook hit the company, and in any case, is the search engine business a mature business, now?

Intriguingly, Google’s top product management executive Jonathan Rosenberg even started to talk about the UK’s property market.  Apparently, Google has noticed “healthy growth” in the UK for terms such as “mortgage rates.”    So it appears the credit crunch is making Google even more important.  As Mr Rosenberg said, “Every foreclosure becomes a home sale to somebody.”   Then again, Mr Rosenberg said that the UK property market has been in a downturn for even longer than the US.    As you know, that is simply not true, so the argument then loses something of its credibility.

But then, talking of credibility, comScore has got a lot of explaining to do.   It had said that it had evidence click-through revenue at Google had stopped growing.  This had created fears that the company was either being hit by the credit crunch, or worse, it had simply moved into a new phase of the company’s development: a mature phase.

Yesterday, Google’s CEO put that to rights. “It’s clear to us that we’re well-positioned in 2008 regardless of the business environment,” said Eric Schmidt. He added, “Paid click growth has been higher than speculated by third parties.”

So that’s pretty clear then, there’s plenty of growth left under the pay per click advertising model bonnet.

Google scored points over the analysts too. The trouble with per-click revenue is that it is open to fraud.    How does a company know that the clicks it is receiving are from people genuinely interested in its products?  Earlier this year Google answered those fears saying it is going to cut down on the volume of ads, so as to improve quality. It expected to be able to up prices as a result, but analysts were not so sure.  As a result the Google share price had fallen from north of $700 to just a few dollars above $400 a few weeks ago.   So once again, Google’s rising profits show that it got it right, the analysts wrong.

And so, Google, IBM, eBay and Intel have all revealed healthy growth recently.  So the omens must be good for Microsoft, then.

Well no. Instead, Microsoft is more likely to be saying “shucks.”    

As you probably know, it has ideas. It wants to own Yahoo, but the number two search engine company is not rolling over and coming quietly.

If Google is doing better than was thought, then Yahoo, which is looking at a tie-up with Google and a merger with AOL as an alternative to the Google offer, must also be looking good.  That means Microsoft might have even more problems getting the company to agree to its offer.

Mr Schmidt made the most of the opportunity to rub Microsoft’s nose in it. “It’s nice to be working with Yahoo,” he said. “We like them very much.”

So what does the future bring?    Google’s big plan for the future is in the mobile phone market, with its product Android - the idea to apply its pay-per-click model to mobile phones?

Will it work?    If it is successful, then the heady growth will continue for many more years.     But up to now, Google’s success has revolved around one product, its search engine.   Other moves have not really been that successful.  And just because Google has enjoyed such phenomenal success in one sphere, it is by no means guaranteed it will enjoy similar success in another, new, area.

February 12, 2008 | posted by Michael Baxter in New Media | comments (1) |

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.

February 4, 2008 | posted by Michael Baxter in New Media | comments (0) |

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.