Google Thinking Hard About Microsoft’s Yahoo Offer
With Microsoft reportedly trying to make a deal for Yahoo’s search business, Google’s ruling triumvirate is trying to figure out what to do next.
Google appears to be boxed in by Microsoft’s reentry into discussions with Yahoo. Though a total takeover looks less likely, even with Carl Icahn threatening to replace Yahoo’s board through a proxy fight, Microsoft could make a small gain against Google by picking up Yahoo’s search and ad business.
As the Times Online noted, Google finds itself in a quandary. Google CEO Eric Schmidt said at a company-hosted event in the UK: “After this press conference the three of us will meet and decide what our response is.”
Their response may have to be one of watching from the sideline. Google hoped to expand a limited test of a deal where they placed results from their AdSense for Search in Yahoo’s search results. But that brief test brought about interest from federal antitrust regulators.
Google’s dominance of search and contextual advertising means any deal that increases their market power likely pulls in harsher federal scrutiny. But if they sit back while Microsoft works out a deal with Yahoo, they will see their next two competitors in search become a solid second place with roughly a third of the search market.
Yahoo itself could thwart the deal by holding out for a higher price, as they did for months with Microsoft’s original acquisition offer. Icahn’s proxy fight threat represents a difference this time, pressure that Yahoo did not have over the past few months.