Google Says Microsoft-Yahoo Move Threatens Internet Innovation

Microsoft's $42 billion bid to takeover Yahoo—still being considered by Yahoo's board—would threaten the "underlying principles of the Internet: openness and innovation," a Google executive said in a Sunday blog posting.

"Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?" asked David Drummond, the Google senior VP for corporate development and the search engine firm's chief legal offer. "While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies -- and then leverage its dominance into new, adjacent markets."

Added Drummond: "Could the acquisition of Yahoo! allow Microsoft -- despite its legacy of serious legal and regulatory offenses -- to extend unfair practices from browsers and operating systems to the Internet? In addition, Microsoft plus Yahoo! equals an overwhelming share of instant messaging and web email accounts. And between them, the two companies operate the two most heavily trafficked portals on the Internet. Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors' email, IM, and web-based services?"

Drummond referred to the move as a "hostile bid," which is a premature characterization. Yahoo's board hasn't yet rejected the bid, meaning this move could easily become friendly. Even if the firms start negotiating, it would still be considered unless Yahoo's board rejects the move and Microsoft proceeds anyway, appealing directly to Yahoo shareholders.

But there's little question that a merger of Yahoo and Microsoft would shake up the world of Google, which has enjoyed Microsoft's inability to move MSN beyond a weak third-place position. Microsoft's aggressiveness coupled with Yahoo's technology and Internet heritage (it's search may be second to Google but its portal is second to none) could be a frightening scenario in Google Land.

There's an excellent story in Sunday's New York Times that tries to figure out Microsoft's current Yahoo strategy given what it revealed in internal documents that Microsoft used in its lobbying against the Google-DoubleClick deal. An important read if you care about the Google-Yahoo space.