The Deal
Wednesday, October 22, 
9:48 am

[Posted on February 4, 2008 - 8:05 PM]

Robert Scoble theorizes that Google Inc.'s move this weekend to raise competitive concerns about Microsoft Corp.'s bid for Yahoo! is an effort to slow the $44.6 billion dollar's march toward Microhoo-hood. "Google is having fun by causing Microsoft to react, not to mention that if its little note is taken seriously this deal will be slowed down by six months or more while government regulators look it over," he says in a post titled "What you all are missing about Google" that chides bloggers for whiffing on the real story.

I don't buy it, and this analysis shows a misunderstanding of how antitrust enforcers operate. It also would amount to a strikingly clumsy bit of gamesmanship, even for a company still honing its lobbying chops in Washington.

First, there's a strong likelihood that the U.S. Federal Trade Commission, which we expect to win the turf fight to vet the deal, would wrap up its review by January 2009. Why? Because that's when the Bush regime rides into the sunset and new regulators come aboard. In other words, an even more powerful force than Google is dictating the timetable here--politics.

Also worth keeping in mind that, at first glance, the Microsoft-Yahoo! deal doesn't trigger regulatory alarm bells. Combined, the companies would have a total market share in display ads of 25.5% (Yahoo! is tops in this segment with 18.8%, while Microsoft is fourth at 6.7%.) In search ads, Microhoo would have a 24.4% share (Yahoo! is No. 2 at 17.5%, behind Google's 53%, while Microsoft has 6.9%.) Google knows the score, and it isn't going to squander political capital by pressuring antitrust enforcers and lawmakers to move against a deal that appears to pass the smell test.

Second, even heavyweights like Google don't successfully bait the U.S. Department of Justice or Federal Trade Commission into firing off a "second request" for information on a deal or on otherwise throwing a lasso around the offer. It's SOP for companies to squawk when top competitors do things they don't like, as Microsoft did last year after Google Inc. bought DoubleClick Inc. for $3.1 billion, or as Oracle Corp.'s competitors did when it bought PeopleSoft Inc. But antitrust regulators will put far more weight on suchdrummond.jpg issues as Microsoft's and Yahoo!'s respective market shares in display and search advertising and on how those markets are defined than on Google general counsel David Drummond (right) firing potshots at the software giant (or on Microsoft returning the favor).

Third, Drummond doesn't have to lift a finger to be certain that this deal will take a long time to close (Google-DoubleClick, anyone?). The merger's size and political sensitivity will make it tough for antitrust watchdogs in the U.S. to wrap up their review before the fourth quarter, while the European Union could easily be working the transaction over well into next year.

Fourth, Drummond and the company's lobbyists (which include some real pros) aren't stupid. They will be well aware of the risks of goading Washington to crack down on Microsoft-Yahoo! by, say, insisting on narrow definitions of the online ad market when Google, of all companies, arguably benefits the most from a broad definition of that sector.

Scoble's right in saying that Google benefits the longer the Microsoft-Yahoo! deal draws out. But he's reading too much into Google's machinations in suggesting that Drummond is trying to spin the feds. - Alain Sherter

See Feb. 1 story from Tech Confidential
See Feb. 4 post from Tech Confidential
For more see Sramana Mitra, and dslreports

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