by Timothy Lee

Filed Under:
deals, mergers, value, war

google, microsoft, yahoo

Competition Isn't War

from the scorched-earth dept

Ben Worthen theorizes that Microsoft is acquiring Yahoo not to increase its own profits but to damage Google. Worthen is suggesting that by slashing prices for its ads, Microhoo could "chip into Google’s profit center," slowing down Google's expansion. I haven't talked to Steve Ballmer about this, but I really doubt this what he has in mind. In the first place, it's not clear that aggressive price-cutting by Yahoo! would even hurt Google that much. Aggressive price-cutting only hurts your competition significantly if you've got enough inventory to satisfy the market at the new, lower price. But Yahoo! has significantly fewer eyeballs than Google, so even if Yahoo! gave away its ads for free, there would still be a lot of unmet demand that Google could cater to. Secondly, trying to "chip away at" Google's ad revenue seems like exactly the wrong way to attack Google. Google has plenty of cash on hand, and its still-astronomical share price makes it easy to raise more. Google employees have told me that the limiting factor for the company at the moment isn't money but the ability to recruit new employees.

More fundamentally, the war metaphor is misleading in this kind of discussion. In a competitive market like this one, companies make profits by creating value for their customers. Especially in a growing market like this one, there isn't a fixed pie to be divided. So there's no reason to think that lowering Google's profits would improve Microsoft's fortunes. Microsoft should acquire Yahoo! if the combined company will be more profitable than they would be separately. Obviously, competition with Google is a big factor to consider, but it gets things backwards to view hurting Google, in and of itself, as a win for Microsoft.

Reader Comments (rss)

(Flattened / Threaded)

  1. identicon
    Lorenzo, Mar 7th, 2008 @ 1:28pm


    I'd speculate that the reason Microsoft wants Yahoo is all the EyeBalls Yahoo already has.

    The speculation I follow suggests that Microsoft would try and inflict its Silverlight thing on the Internet via the MicroHoo thing. Thus forcing the Internet to uses its proprietary formats resulting in the lockout of other OSs and browsers such as Unix (all flavors) and Firefox, Opera, etc.


    reply to this | link to this | view in thread ]

  2. identicon
    Anonymous Coward, Mar 7th, 2008 @ 1:39pm

    Re: MicroHoo

    Or y'know, they're just growing their business. But hey, rationality and analysis of Microsoft never go hand in hand do they?

    reply to this | link to this | view in thread ]

  3. identicon
    Hellsvilla, Mar 7th, 2008 @ 1:42pm

    History should repeat itself.

    I think google should offer to sell itself to yahoo for a nice round million. Then scream "just kidding".

    'cause that would be funny. Even if it is overly childish.

    reply to this | link to this | view in thread ]

  4. identicon
    Anonymous Coward, Mar 7th, 2008 @ 2:00pm

    And in other news, MS/Google Bid for Digg!

    I really don't like where this is going-- Too much consolidation, too fast.

    reply to this | link to this | view in thread ]

  5. identicon
    Le Blue Dude, Mar 7th, 2008 @ 2:12pm


    Ageed. Less consolidation

    reply to this | link to this | view in thread ]

  6. identicon
    Jake, Mar 7th, 2008 @ 4:07pm

    Re: MicroHoo

    I don't think Microsoft are quite that foolish, and in any case Mozilla, Apple and the other browser design teams would have a technical work-around within days.

    reply to this | link to this | view in thread ]

  7. identicon
    Rekrul, Mar 8th, 2008 @ 3:44pm

    Microsoft has a long history of trying to "win" by running the competition into the ground. Back in the days of MS-DOS, MS used over-exaggerated pre-sale hype to trick people into waiting for the next version, rather than buy DR-DOS, which MS internal memos admitted was a superior product. Then they intentionally inserted code into Windows 3.11 to ensure that it wouldn't load if it detected DR-DOS. They even instructed programmers to have it display some cryptic error message, and then rigged their help line to imply that not using MS-DOS was the source of all their problems.

    reply to this | link to this | view in thread ]

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