Can a combined Microsoft-Yahoo! rattle a dominant Google? Although such a merger
might get these two companies closer to competitive on paper,
will it be enough in the real Internet world?.

Microsoft tossed a financial and political grenade into the Yahoo! camp with its unsolicited $44.6 billion cash and stock offer to buy the Y! company. Microsoft seems to be saying it is ready to take off its gloves and compete more effectively with Google.

Rhonda Wickham Editor-in-Chief

As I write this, Reuters reports that Google is now also courting Yahoo!, either to form a business alliance or a possible commercial partnership. It is too early to tell what might become of the Google counter-move. I suspect, if serious, it would have to be some sort of business alliance because a commercial alliance of Google and Yahoo! would smack of antitrust and never pass government scrutiny.

Although I believe you have to start somewhere in building a large enough force to get Google’s attention, I am not convinced that the marriage of Microsoft and Yahoo! will do anything more than simplify Google’s search for nearest competitors.

After all, what is at stake here is more than No. 1 in search; it is supreme dominance in the Internet Age. Although Microsoft can claim near total dominance in desktop operating systems and office productivity software, it can’t make the same claim regarding search and online advertising. In the search space, Microsoft’s global market share barely registers at a paltry 2.9% against Google’s dominant 62%. And its advertising market share comes in at less than that.

So if you believe as I do that software will be increasingly delivered as an Internet-based, advertising-supported service, Microsoft’s flank is severely exposed to a straight shot from Google. Which is why Microsoft needs a company like No. 2 Yahoo!. But Yahoo! has been struggling in the last 12-24 months. I believe this proposed acquisition would be nothing more than an attempt at a quick fix that ultimately will only distract both companies from the business at hand.

Obviously, we all have strong allegiances in terms of favorite search resources. They undoubtedly stretch from king-of-the-hill Google and reach down to the lesser players like DogPile and Ask.com. Even if you combine the Microsoft and Yahoo! loyalists, you still don’t reach the popularity of Google. So even joined together, the two will still need to stretch mightily to get more online traffic.

Then there is the issue of timing. Any acquisition takes time to complete, during which it’s difficult, if not impossible, to keep commercial and revenue-generating projects moving at a healthy pace. Will these two companies lose precious time and momentum in the race while Google stays on track improving its search and advertising glories?

In theory, Microsoft and Yahoo! could combine their best features and try to gain ground on Google. Besides my concern about time lost to the business of acquiring and merging, I also have serious concerns about the inevitable corporate culture clash.

Although both companies are West Coast laid-back, the corporate cultures are still quite different. Not only that, one company is focusing on driving the popularity of its Windows and Office tools while the other is focusing on e-mail services and online user groups. What could ultimately happen is the combined and somewhat confused new corporate culture could drive away key engineering and idea talent. Where would they go? Hmm, let’s see. Perhaps Google?

Even if these corporate cultures can find a way to peacefully co-exist, it is going to take time for them to resolve the blend and restart the momentum on software, services and new ideas.

Finally, even if Microsoft does succeed in acquiring Yahoo!, can the new entity ultimately come across as cooler, edgier or better than the reigning G-Poobah? After all, Google owns two-thirds of the U.S. search market. To reign supreme, the new company will have to convince some Google loyalists to switch teams. At this point, that seems about as likely as getting AT&T or Verizon Wireless subscribers to switch carriers. Sure, the subscribers may window-shop, but they aren’t going to buy.