Last July, Adam Thierer and I argued in a Forbes.com piece that the Microsoft/Yahoo! search partnership should be cause for “celebration among as a good thing for consumers. By providing a strong competitor with a combined 28% market share, the deal should also be a source of relief at Google, which has come under increasing attack for its supposed market dominance.” Today, 205 days later, the companies have finally announced that EU and US antitrust regulators have approved their deal.
So… how does a delay of nearly seven months help consumers? Wouldn’t we be better off if the two companies had been able to start working together immediately to develop a stronger search engine competitor without this “Mother, May I?” routine?
Last year, I described how Microsoft’s delayed entry into search advertising put them at a serious disadvantage in competing with Google. (The company dithered over buying search ad startup Overture and ultimately decided to build its own system—which proved a serious miscalculation.) I’ll just reiterate what we said about the Yahoo!/Microsoft deal when it was first announced.
Yahoo!/Microsoft pact is just the latest pairing of Web 1.0 titans struggling to reinvent themselves and compete with Google, a titan that still thinks of itself as a start-up. All three companies will struggle to meet new challenges as search evolves toward the social(reflecting what your friends like), the semantic (reflecting the precise, rather than presumed, meanings of Web content), the personalized (reflecting your own preferences) and the interactive (including user-generated comments or reviews)…. Continue reading →
I very much enjoyed Dennis Baron’s new book, A Better Pencil: Readers, Writers, and the Digital Revolution, and highly recommend you pick it up. Baron does a wonderful job exploring the history of techno-pessimism and the endless battles about the impact of new technologies on life and learning, something I have written about here before in my essays on “Internet optimists vs. pessimists” (See: 1, 2, 3).
I have a complete review of Baron’s A Better Pencil now up on the City Journal’s website here. I’ve also pasted it down below.
________________________
In the beginning, Dennis Baron reminds us in his new book, A Better Pencil, there was the word—the spoken word, that is. Oral tradition, the passing of knowledge through stories and lectures, was the primary method of instruction and learning throughout early human civilization. But then a few innovative souls decided to start writing everything down on stones and clay. Almost as soon as they did, a great debate began on the impact of new communications technology on culture and education. And it rages on today, with a new generation of optimists and skeptics battling over the impact that computing, the Internet, and digital technologies have on our lives and on how we learn about the world.
The Google juggernaut’s revenue growth has slowed steadily in the last five years, causing the Wall Street Journal to caution investors about buying Google stock. While much of the slow-down in Google’s revenue may be attributed to the recession, the WSJ cautions that:
Microsoft is offering stiffer competition in search, which will only intensify once antitrust regulators approve its partnership with Yahoo! and the two companies actually implement their partnership (which could take another year);
YouTube’s promise as an ad platform remains uncertain;
Google lags behind Apple and Research in Motion in developing mobile phone operating systems, with Android still unproven;
It remains unclear how successful the company will be in expanding beyond its existing lead in small text ads into the potentially lucrative realm of banner ads.
Somehow I doubt Google’s fall to Earth will do much to allay the concerns of those who see Google as the kind of evil monopolist Microsoft was made out to be in the 90s.
As the Journal concludes, “It would be foolish to predict that Google won’t have another business success, of course… Google may itself discover the next Google-like business.” As long as someone’s out there working to turn today’s idle fantasies into tomorrow’s multi-billion dollar businesses, consumers win—whoever that bold innovator might be.
Microsoft and Yahoo’s proposed deal faces a tough antitrust gauntlet. In today’s The Seattle Times, Jonathan Hillel and I have an op-ed in which we argue that trustbusters should let the deal go through:
MICROSOFT and Yahoo want to join forces in Internet search to better compete against Google. But first, they need the blessing of government antitrust enforcers. Senate Antitrust Subcommittee Chairman Herb Kohl, D-Wis., already has threatened “careful scrutiny” of the deal. But trustbusters should not go fishing for problems in the Internet search market. In the relentlessly fast-moving digital economy, government intervention contorts the market and ultimately harms consumers.
Under their proposed decade-long pact, Yahoo searches will be powered by Microsoft’s Bing search engine, which launched this June. The two search firms will maintain separate Web sites, but Microsoft will administer the technical side of both. Microsoft will also gain access to Yahoo’s vast volume of searches and query data. In exchange, Yahoo will receive 88 percent of ad revenues from searches performed on its own site.
We’ve written a lot lately about Microsoft’s efforts to reinvent itself, first rebranding its Live search engine as the Bing, and then partnering with Yahoo! to make Bing the search engine on Yahoo!’s still-impressive empire of content and services. But if Microsoft is going to beat Google in Search 3.0 and master shifts in the driving paradigms of the Internet from search and browsers to ubiquitous integration of social networking and other paradigms as yet unforeseen, Microsoft will need more than just brilliant engineering: They’ll need clever marketing.
So it seems that the software titan is turning to user-generated advertising, such as this gem:
WARNING: Battlestar Galactica spoiler: Google may well be in danger of losing its monopoly on cool to Microsoft if Bingcan get at least four of the Final Five Cylons to volunteer as back-up singers in a promo video contest.
Google clearly considers Microsoft a threat, having recently launched an ad campaign of its own for its Apps services, which compete directly with Microsoft Office.
Maybe Obama should invite Google CEO Eric Schmidt and Microsoft CEO Steve Ballmer over to the White House for a beer to settle the two companies’ differences!
While he’s at it, Obama might want to invite Apple CEO Steve Jobs, too, since the common cause Apple and Google once made against Microsoft now seems to be giving way to increased rivalry between the two titans of Internet cool. Or how about Facebook CEO Mark Zuckerberg, given Facebook’s growing challenge to Google? Yahoo!’s Carol Bartz seems to get along much better with everyone than the boys in the group, so she’d probably help Obama keep things under control.
The Internet industry’s war-of-all-against-all is reminiscent of Tom Lehrer’s classic 1960s satire “National Brotherhood Week”:
Like many others, I’ve wondered whether Yahoo! got less than it should have becuase government antitrust regulators prevented Google from bidding up the value of a deal with Yahoo!.
Carl Icahn, who owns 5% of Yahoo! seems happy enough while others still wonder if Microsoft got the better end of the deal, BusinessWeek reports. While many observers have howled that Yahoo! gets revenue-sharing instead of cash up front, Yahoo! Carol Bartz notes that a cash deal “would have had significant tax consequences while contributing only $3 million in annual interest to Yahoo’s bottom line.”
Whatever the initial terms of the deal, its value depends on speedy approval without onerous conditions being imposed by antitrust regulators—even if they take the form of “voluntary” concessions. Let’s hope the government gets out of the way to give this new partnership a real chance to go toe-to-toe with Google in search, as I’ve suggested here, here and especially here.
For [Microsoft CEO Steve] Ballmer, the agreement provides some redemption in an area he has stressed is critical to Microsoft’s future. In an interview, he says the Yahoo deal received “more of my personal attention over the last 18 months than anything else we’re involved with,” including focusing on its most important new product in years, Windows 7. “It’s a big deal,” he says.
Of course, complex partnerships always require lots of time from senior management, but in this case, Ballmer’s quip speaks directly to the costs of antitrust scrutiny in terms of one of the most valuable resources available to any company: the time and attention of senior management. The “attentional cost” can of this deal for Microsoft could be broken into four parts beyond the normal costs of structuring any deal to make the most business sense:
How to structure the a Microsoft/Yahoo! deal so that it would be approved by regulators (defensive);
How to block a Google/Yahoo! deal (offensive);
Nursing the deal through the regulatory approval process over the coming months; and
The possibility that all of these costs could be wasted, to varying degrees, if antitrust regulators decide to block or restrict the deal.
These are all “deadweight losses” on the economy pure and simple—and ultimately costs to consumers.
Eric Goldman, one of the few active cyberlibertarians in legal academe, has a thoughtful post about the search partnership announced today. Eric notes blogger Danny Sullivan’s observation about the decline in Yahoo’s assets and his comment that:
Microsoft is getting a huge bargain courtesy of the US Department Of Justice. Without Google being able to compete for Yahoo’s business, the billions that were floating around in 2008 become millions in 2009.
Danny and Eric certainly have a strong point: One of the costs of the Justice Department’s decision to block Google from partnering with Yahoo! is that Yahoo! wound up fetching much less in its deal with Microsoft. But the intervening slump in the economy and online advertising has also contributed in the drop in Yahoo!’s share price and overall valuation, so it’s difficult to make an apples-to-apples comparison. Eric is probably right that in assessment that:
Yahoo was unbelievably crazy for passing on Microsoft’s acquisition proposal from a year-and-a-half ago. It looked like a foolish mistake at the time, and hindsight has definitely not improved that assessment!
It would seem that both Yahoo! and Microsoft under-estimated the likelihood that antitrust regulators would block a Yahoo!/Google deal a year ago: Microsoft probably wouldn’t have offered as much as it did to acquire Yahoo!’s search business ($31/share) and Yahoo! (currently $15.14/share) certainly wouldn’t have held out for a better deal from Google. While the end result ended up being a Yahoo!/Microsoft deal anyway, the delay of over a year in reaching a deal is itself a significant cost of what economists would call the “regime uncertainty” created antitrust: Without clear rules, it’s difficult for economic actors to predict the decisions by regulators. A delay of a year could well prove to make a big difference in the ability of the two companies to mount a successful response to Google in search and advertising—just as Microsoft’s 18 month delay back in 2003-2004 in developing a search ad auction system to respond to Google’s AdWords system (which now produces 2/3 of its revenue) probably did much to thwart Microsoft’s initial efforts to compete in search. Continue reading →
A key point that Berin and I try to get across in our Forbes editorialtoday about the Yahoo!-Microsoft deal is that the high-tech marketplace evolves too rapidly for creaky Analog Era antitrust laws to keep up. We wanted to say more on that point in our piece, but we had a tight deadline (and a strict word limit!) Well, turns out that we really don’t need to do so now because Farhad Manjoo of Slate has done a better job than we ever could have making that point in this essay today entitled, “The Case Against the Case Against Google“:
But if the government was right on the facts [in the Microsoft case], it was wrong on the big picture. The theory behind the prosecution was that Microsoft’s mobster tactics would raise the price of software and slow down innovation. But that didn’t happen. In 2002, Microsoft settled the antitrust case with the Bush administration; it faced no substantial penalties for its years of bad behavior. At that point, it still looked unbeatable—it had the same OS monopoly, office-software monopoly, and Web-browser monopoly. And you know what happened? It got beat anyway. Many of Microsoft’s assets turned out not to matter, because upstarts like Google and old foes like Apple found ways to innovate around them.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology. Learn more about TLF →
Comments 
Posted in: Advertising & Marketing, Antitrust & Competition Policy 
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.
