Allowing Microsoft to buy Yahoo would create a business with an unacceptably dominant position in the vital online communications services of email and instant messaging, Google warned last night.
If a deal is struck, following Microsoft’s audacious $44.6bn offer on Friday, Google also fears that the development of the internet, which has relied on open standards that all developers can use, could be jeopardized. Microsoft has spent years at loggerheads with regulators on both sides of the Atlantic over its refusal to open its software products to rival platforms.
Google’s concerns are likely to add pressure for any deal to be heavily scrutinized by the regulatory authorities. The US justice department said on Friday it would be interested in investigating any deal on antitrust grounds. European regulators, already examining aspects of Microsoft’s business, are likely have a similar view.
Yahoo’s management has yet to say whether it will accept the offer. It is understood to have spent the weekend discussing the $31-a-share cash and stock bid and a public statement is expected early this week, but many on Wall Street think chief executive Jerry Yang opposes a tie-up.
Last week, Microsoft made no secret of the rationale behind its unsolicited approach: to create a serious competitor to Google’s commanding position in online advertising, a market worth an estimated $40bn last year.
"Today the market is increasingly dominated by one player," Kevin Johnson, president of the platforms and services division of Microsoft, said last week. "The fact is the industry will be better served by having a more credible alternative."
Google dominates the market’s largest segment, search advertising. In the UK, Google accounts for 81% of all online searches, compared with 6% for second placed Yahoo and 5% for Microsoft’s MSN, according to the online data group Comscore.
But as the online advertising market expands – to an estimated $80bn by the end of the decade – growth is expected to come from other areas, such as display advertising.
Google is trying to expand beyond search, buying advertising network Doubleclick last year. But it believes that other online activities, such as email and instant messaging, will become increasingly important vehicles for advertising.
It has already experimented with tying advertising to the content of emails through its Gmail service. But Gmail is dwarfed by Microsoft’s corporate Outlook and web-based Hotmail applications as well as Yahoo’s email services. Google also has a messaging application, Google Talk, but it trails Microsoft’s MSN Messenger and Yahoo Messenger in popularity, with 2 million-plus US users last year, according to Nielsen NetRatings.