Our Forbes.com Op-Ed on Yahoo!-Microsoft Search Partnership

by on July 29, 2009 · 17 comments

We’ve just published an op-ed over at Forbes.com about today’s big Yahoo!-Microsoft deal.

Searching For Success: Web 1.0 Titans Struggle to Reinvent Themselves
by Berin Szoka & Adam Thierer

Yahoo! and Microsoft on Wednesday announced a partnership in which Microsoft’s Bing search engine technology will power search for both companies, but Yahoo! will manage advertising sales and content creation.

This should be cause for celebration 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. But if recent concerns about online search, advertising, competition and privacy are any guide, many will fail to appreciate why the deal is pro-consumer, or what it says about the rapid evolution of the Internet.

It’s easy to forget that just a decade ago most of us still hadn’t done our first Google search, Microsoft was still focused on the desktop and Yahoo! was still serving up the online equivalent of the Yellow Pages. AltaVista, AOL, CompuServe and Geocities still ruled the roost.

Today, as we enjoy the fruits of a true cyber-renaissance, cyberspace circa 1999 increasingly looks like the Digital Dark Ages: The old online walled gardens have crumbled, desktop applications have migrated to the cloud and search has redefined our experience of the Web.

Oh, and did we mention just about all of it is “free“? Sounds like exactly the sort of vigorous innovation, expanding consumer choice, falling prices and cut-throat competition that policymakers should want, right?

Alas, regulators seem stuck in the past. European officials in particular seem hell-bent on continuing the antitrust crusade of the ’90s against Microsoft, myopically focused on fading paradigms (desktop operating systems and Web browsers). But instead of narrowly defining high-tech markets based on yesterday’s technologies or market structures, policymakers should embrace the one constant of the Internet economy: dynamic, disruptive and irrepressible change.

Innovation isn’t just transforming the way we use the Web, it’s rapidly changing the competitive landscape too. Some of the predictions of the ’90s are finally coming true: Browsers have morphed into platforms for applications including e-mail, word processing and real-time collaboration. A decade ago, few would have predicted Google would build its own browser, turn that browser into an operating system, build an OS for smart phones, or go head-to-head with Microsoft Office. And the idea that Microsoft would ever take Office into the cloud was at one point unthinkable, but that’s happening now too. Meanwhile Google, and more recently Microsoft, have become full-fledged advertising companies–in competition with traditional media giants. Again, no one saw this coming.

The 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).

Even the business model of search is changing, with Microsoft offering consumers cash back for their searches. Meanwhile, new paradigms of social networking like Facebook and Twitter are emerging with business models whose potential remains both unclear and unlimited.

Despite this whirlwind of change, the Yahoo!/Microsoft deal is bound to lead to some hand-wringing from lawmakers and antitrust officials in Washington and Brussels. Regulators already blocked a somewhat similar advertising partnership between Google and Yahoo last year. What unites these regulatory responses is the belief that rapidly evolving digital technologies can be regulated like the static utilities of the analog era–and the failure to understand that antitrust is just another form of regulation.

Instead, policymakers should recognize that the business, user and technological paradigms of the Web are constantly being re-invented and replaced. They shouldn’t delay approving this deal, especially as any delay would lengthen an awkward period of uncertainty for the corporate couple at the antitrust altar. Moreover, they should avoid micro-managing the transaction through regulatory blackmail: demanding “voluntary concessions” before giving their blessing.

For many of the same reasons, policymakers should exercise great care and humility when listening to the growing cacophony of calls for antitrust intervention against Google. “Googlephobia” has reached a fever pitch in recent months with plenty of critics in both government and industry hinting that they’d like to see the company crippled with new restrictions or obligations–much as Microsoft was in the ’90s. The idea of antitrust regulators becoming a veritable “Federal Search Commission” for such a rapidly evolving sector seems highly problematic. America’s high-tech sector is the envy of the world precisely because, generally speaking, the U.S. has rejected heavy-handed regulation of the Information Economy. Indeed, no one knows better than Microsoft how much “antitrust oversight” can hamstring a company’s ability to stay ahead of transformative change.

Some will protest that this is just a case of the big getting bigger, but there have always been big fish in the high-tech pond. The difference today is that there are new fish jumping in the pond more rapidly than ever before, and today’s pond probably won’t be tomorrow’s evolutionary battleground.

Lacking a technological crystal ball with which to predict the future of this fast-paced sector, there’s no way to know which of those players or technologies will thrive or what the digital paradigms of the next decade will look like. But heavy-handed antitrust regulation based on static thinking will lock us into an “industrial policy” for the Internet. Treating America’s tech titans like smokestack-era utilities won’t benefit consumers or enhance America’s competitive standing in the world.

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