05 February 2008

Google, Microsoft in Dueling Monopoly Claims

You can't drop a bomb like that without expecting some aftershocks. Google's first public response to Microsoft's blockbuster move revisits some familiar ground for both companies -- and opens the first front in its war to keep Microsoft away from the Internet.

Writing in a company blog post on Sunday, Google Chief Legal Officer David Drummond warned that Microsoft's acquisition bid for Yahoo raises troubling concerns about openness, innovation and competition in the Internet economy.

Microsoft announced the unsolicited $44.6 billion offer to buy Yahoo on Friday.

Characterizing Microsoft's takeover bid as "hostile," Drummond warned that the acquisition, if consummated, could put Microsoft in a position to continue its "legacy of unfair practices from browsers and operating systems to the Internet."

According to Drummond, the buyout could enable Microsoft to restrict access to rivals' online communication services. Microsoft and Yahoo between them "operate the two most heavily trafficked portals on the Internet," Drummond wrote. "Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors' e-mail, IM and Web-based services?"

It was the Internet's openness that allowed companies like Google and Yahoo to flourish, Drummond noted, adding that he believes Microsoft's historic strategy of building proprietary monopolies runs counter to the spirit of competitive innovation that made the Internet what it is today.

Drummond called on regulators to take a close look at the deal, and take steps to ensure that consumers receive "satisfying answers" to the competitive concerns.

On Sunday, Microsoft's general counsel, Brad Smith, released a statement that reads as a preemptive defense against a potential regulatory fight -- a fight that Google is already spoiling for.

"The combination of Microsoft and Yahoo will create a more competitive marketplace by establishing a compelling No. 2 competitor for Internet search and online advertising," Smith wrote. "The alternative scenarios only lead to less competition on the Internet."

Paradoxically, Drummond's warnings about the stifling effect that the merger could bring on competition and innovation on the Internet invoke the same rhetoric that Microsoft's executives used in announcing the merger on Friday.

They said that Google draws 75 percent of all search-advertising revenue, and that the combination of the second- and third-ranked players in that market would improve the competitive landscape.

Also, Microsoft has been one of the most vocal opponents of Google's $3.1 billion acquisition of DoubleClick, a leader in online display advertising.

In December, documents surfaced showing the lengths to which Microsoft had gone to warn of the anticompetitive implications of the merger. Microsoft issued the documents to the Federal Trade Commission in its lobbying effort against the acquisition.

"We believe this merger raises serious questions about the future of competition in the online advertising market, as well as about consumer privacy and copyright protection," Jack Evans, a Microsoft spokesperson, wrote in an e-mail to InternetNews.com at the time.

The Google-DoubleClick merger also drew strident protests from consumer advocates but received approval from the FTC in December. It is currently under review by the European Commission.

- Kennith Corben, InternetNews.com