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Google Warns Microsoft-Yahoo Deal Endangers Internet

Microsoft countered by saying that Google -- not it -- is actually the monopolist.
Following Microsoft's unsolicited $44.6 billion offer to buy Yahoo on Friday, Google on Sunday warned that the innovation and openness of the Internet could be jeopardized if the deal goes through.

"Microsoft's hostile bid for Yahoo raises troubling questions," said David Drummond, senior VP of corporate development and chief legal officer, in a post on the official Google blog. "This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: openness and innovation."

Drummond wondered aloud whether Microsoft might "attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC" and urged policy makers to put that question to the company.

On Friday, according to The Wall Street Journal, Google CEO Eric Schmidt called Yahoo CEO Jerry Yang to offer Google's support in fending off Microsoft. Google declined to comment further.

That same day, Yang and Roy Bostock, nonexecutive chairman of Yahoo's board, sent a letter to employees stressing that no decision has been made about Microsoft's offer. The letter says that Microsoft's proposal is one of many options under consideration and that Yahoo will respond after "a careful review of all of our strategic alternatives."

Should Microsoft's bid move forward, it faces certain government review. Last week, members of the House Judiciary Committee said they intended to use a hearing this coming Friday to review antitrust issues raised by the proposal.

Microsoft on Sunday countered with a statement issued by Drummond's counterpart at Microsoft, general counsel Brad Smith.

"The combination of Microsoft and Yahoo will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising," said Smith. "The alternative scenarios only lead to less competition on the Internet."

To support his argument that Google, and not Microsoft, is the monopolist, Smith said that Google has 75% of paid search revenue worldwide, a 65% share of search queries in the United States, and 85% of the search queries in Europe. Microsoft and Yahoo combined, he said, receive about 30% of U.S. search queries and 10% of European search queries.

Google finished 2007 with a 58.4% share of U.S. searches, up from 52.6% in January 2007, according to Internet metrics company ComScore. Yahoo and Microsoft finished 2007 with 22.9% and 9.8% shares of U.S. searches, down from 26.9% and 10.4%, respectively, in January 2007.

Perhaps more troubling for Microsoft is that Google's global share of unique visitors to its Web properties grew by 19% from December 2006 to December 2007, according to ComScore. Microsoft and Yahoo saw their global share of unique visitors grow by 6% and 2%, respectively, during this period.

A Microsoft-Yahoo marriage won't necessarily reverse the downward trend for either company.

Microsoft's concern about Google goes beyond search advertising. As Forrester Research analyst Charlene Li argued in a Friday blog post, "Microsoft is interested in search because it provides a beachhead into businesses -- especially small and medium-sized ones who don't have a direct relationship with Microsoft."

Microsoft's worry is that small businesses will choose Google Apps and related enterprise offerings over Microsoft Office. It remains to be seen whether owning Yahoo will increase the appeal of Office.