What some are calling YahooSoft could be the biggest threat yet to Google goog.
A potential tag team of Yahoo-Microsoft, who have played second fiddle to Google in the search and online ads, will surely intensify pressure on Google, possibly forcing it to counter through an acquisition, says Allen Weiner, an analyst at Gartner.
AOL, for instance, would fit nicely into Google, says Shahid Khan, tech industry analyst at IBB Consulting. AOL could bring a herd of loyal e-mail and instant message users, supplementing Google's lightly used offerings. "This puts pressure on Google to make its online offerings, other than search, more appealing to the masses and not just to techies," Khan says.
In a statement Sunday on the company's blog, Google's chief legal officer, David Drummond said Microsoft's msft bid for Yahoo yhoo raises "troubling questions." Drummond asked if an acquisition would allow Microsoft "to extend unfair practices from browsers and operating systems to the Internet." Noting that Microsoft and Yahoo operate the two most heavily trafficked Web portals, he asked if a combination could "unfairly limit the ability of consumers to freely access competitors' e-mail, IM and Web-based services?"
Brad Smith, Microsoft's general counsel, issued a statement Sunday refuting Google's protests. A Microsoft-Yahoo tie up would "create a more competitive marketplace," says Smith. Scenarios that do not include the proposed merger "only lead to less competition on the Internet," he says.
Google's share of Internet searches is more than 60% in the USA — about twice the combined total of Yahoo and Microsoft, according to ComScore MediaMetrix. And Google commands 78% of worldwide search advertising revenue, worth $11.5 billion a year. Yahoo has 11%, worth $1.6 billion, says Jeffrey Lindsay, analyst at Sanford C. Bernstein.
Even where Yahoo-Microsoft enjoys a competitive advantage, it could be short-lived. Google has 1% of the U.S. online ad-display market, compared with more than 25% for Yahoo and Microsoft, according to ComScore. But Google's pending $3.1 billion acquisition of display-ad network DoubleClick could close the gap, analyst Lindsay says.
What Google also has is time. Any real competitive gains by a Microsoft-Yahoo combo could be a long time coming. The U.S. Justice Department on Friday expressed interest in reviewing the deal, a setback to Microsoft's plans to close the deal this year.
"Until those issues are settled, Google goes about the business of dominating the search and ad business," analyst Weiner says. "Will they capitalize on these two companies spending a lot of time planning and perhaps not tending to business? For sure."