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A Microsoft-Yahoo! merger: good for the Internet?

The proposed acquisition would leave Google and Microsoft as the only major conduits connecting advertisers and online publishers – until a better search technology comes along.

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The search biz: Bill Gates's (l.) Microsoft is bidding to take over Yahoo!, led by CEO Jerry Yang (r.)

AP/File

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The more people who look for deals on eBay, or create a Facebook page, or post jobs on Craigslist, the more valuable these sites are for subsequent users. It's called a network effect, and it's behind the tendency in a lot of high-tech industries to consolidate into one or two dominant companies.

It's also the backdrop of the fight between Microsoft and Google this week over control of mutual rival Yahoo!. Microsoft made a $44.6 billion bid Friday for the struggling Internet leader, after failing to persuade government regulators last year to stop Google's merger with ad serving company DoubleClick. Microsoft argued at the time that it could not catch up to Google in delivering certain forms of online advertising because of network effects.

Now Google has reacted to Microsoft's bid by leveling the same cry of creeping monopoly, arguing that a Microsoft- Yahoo! combination would dominate in e-mail, instant messaging, and Web portals. "Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?" reads Google's press statement.

Above all, the acquisition would leave Google and Microsoft as the only major conduits connecting advertisers and online publishers. Just how much that bothers certain analysts depends somewhat on whether they think network effects would solidify an unhealthy dominance.

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