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Regulators Should Approve Microsoft-Yahoo Deal

by on August 11, 2009 · 9 comments

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.

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The Search Wars: With Jingles Like This, Microsoft’s Bing Can’t Lose!

by on August 7, 2009 · 16 comments

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:

http://www.youtube.com/v/h9DBynJUCS4&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&feature=player_embedded&fs=1

WARNING: Battlestar Galactica spoiler: Google may well be in danger of losing its monopoly on cool to Microsoft if Bing can 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.

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Google v. Microsoft v. Apple v. Facebook: Nothing Obama Can’t Sort Out Over a Beer

by on August 4, 2009 · 6 comments

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!

http://www.youtube.com/v/Q0umKaGxkkE 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”:

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Yahoo!/Microsoft: Not Such a Bad Deal for Yahoo! After All?

by on August 3, 2009 · 8 comments

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.

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The Deadweight Costs of Antitrust Scrutiny: Distracted Management

by on July 30, 2009 · 15 comments

Nick Wingfield has a great piece in today’s WSJ: Yahoo Tie-Up Is Latest Sign Tide Turning for Microsoft’s Ballmer (subscription required but can be found through a Google News search) about how Microsoft’s fortunes may be looking up across the board—especially with yesterday’s Yahoo!/Microsoft search/advertising partnership. The most interesting passage is this one:

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:

  1. How to structure the a Microsoft/Yahoo! deal so that it would be approved by regulators (defensive);
  2. How to block a Google/Yahoo! deal (offensive);
  3. Nursing the deal through the regulatory approval process over the coming months; and
  4. 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.

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A Bargain Deal on Yahoo! for Microsoft & the Regime Uncertainty of Antitrust

by on July 29, 2009 · 9 comments

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 →

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Antitrust Law Can’t Keep Up with High-Tech

by on July 29, 2009 · 25 comments

A key point that Berin and I try to get across in our Forbes editorial today 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.

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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.

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“Parental Controls & Online Child Protection” PFF special report (Version 4.0 Release)

by on July 27, 2009 · 18 comments

ThiererBookCover062007The latest edition (Version 4.0) of my PFF special report on “Parental Controls and Online Child Protection: A Survey of Tools & Methods” is now up.  For those not familiar with the report, it explores the market for parental control tools, rating schemes, education and media literacy efforts, and various other tools, methods, and initiatives aimed at promoting online child safety.  After evaluating that state of this market, I conclude: “There has never been a time in our nation’s history when parents have had more tools and methods at their disposal to help them decide what constitutes acceptable media content in their homes and in the lives of their children.”  Moreover, I believe that the parental controls and content management tools cataloged in the report represent a better, less restrictive alternative to government regulation.

Version 4.0 of the report is now over 250 pages long (up from 200 pages in Version 3.0) and it contains almost 70 exhibits (up from 50), 725 references (up from roughly 500), and numerous updates in all five sections of the book. Major updates have been made to the Internet, social networking, and mobile media sections, reflecting the growing importance of those sectors and issues. Other new sections or appendices have also been added to the report, including:

  • a new section examining how many households really need parental control tools;
  • a new appendix on the downsides of mandatory parental controls and restrictive default settings;
  • a new section on the dangers of “deputizing the online middleman” solution as an approach to solving child safety concerns;
  • a new appendix reviewing the findings of 5 past online safety task forces;
  • … and much more.

I issue major updates once a year and 1 or 2 minor tweaks during the course of the year to reflect the evolution of the parental control and online child safety marketplace and debate. The report is available free-of-charge on the PFF website, and the previous editions of the report are housed there too in case you want to see how it has evolved over the past couple of years. For those interested in taking a quick look at the report, I have embedded it down below the fold as a Scribd file. Finally, as is always the case, I encourage readers to send me updates and suggestions for how to improve the report and I will incorporate them into future versions. Continue reading →

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Belgian Ruling Against Yahoo! Sets Dangerous Precedent for Regulation of Internet

by on July 12, 2009 · 6 comments

We often talk about the problem of having all 50 states impose different regulatory requirements on the Internet, with the most restrictive standard effectively applying to all Internet actors.Fortunately, in the U.S. such efforts can be stamped down either by invoking the “Dormant Commerce Clause” (DCC) in court or by passing “preemptive federal regulation.”  (Unfortunately, most who complain about patchwork approaches, both in industry and the advocacy community, usually forget about the DCC and move right to federal legislation.)

But what about the 195 independent countries in the world (to say nothing of their regional/local subdivisions)? What if they each tried regulating Internet activity? Our friends at the Center for Democracy at Technology report on a scary precedent set by a Belgian court in March when it ruled that Belgian law applied to Yahoo! merely because Belgian citizens could access Yahoo! Mail. Thus, the court ruled that Yahoo! violated Belgian law when the company refused to hand over user data in response to an email from a Belgian prosecutor. CDT rightly applauds Yahoo! for insisting that the Belgians “follow established diplomatic and legal processes in order to gain access to user information.” But as the post notes, the really scary prospect is that of one country asserting authority over every site or service on the Internet that can be accessed in their country.

If this precedent stands, it’s likely to cause, at the very least, many companies to limit access to their sites or services by persons from countries with burdensome regulatory approaches. Even if those foreign laws are well-intentioned and laudable—such as efforts to punish fraud (as in the Belgian case) or to crack down on, say, child porn or protect user privacy)—the result could be to balkanize Internet services.  This would be especially unfortunate, given the incredible importance of services that might previously have seemed “un-serious” like Twitter or Facebook as “technologies of freedom.” CDT notes the danger to Internet freedom:

To understand how problematic this ruling is, we need only imagine how the governments of China, Iran, Vietnam or other repressive regime of your choice may decide that the precedent set here is one well worth following. Such actions undermine Belgium’s moral authority since, after all, it would only be hypocritical for Western democracies to criticize such radically overbroad assertions of jurisdiction by other nations.

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