Preston Gralla

Ready, fire, aim: Feds target Microsoft-Yahoo deal

September 14, 2009 12:45 PM EDT
The U.S. Department of Justice may be targeting the Microsoft-Yahoo deal as being anti-competitive --- but given that Google controls approximately 65 percent of the search market, the feds are aiming their legal guns in the wrong direction.

Computerworld reports that the U.S. Department of Justice (DOJ) has asked that Microsoft and Yahoo turn over more information about their planned search partnership, as part of an look into whether the deal is anti-competitive. This comes as no particular surprise --- Microsoft expected scrutiny. Microsoft spokesman Jack Evans wrote to Computerworld in an email:

"As expected, we received additional request for information about the agreement earlier this week. When the deal was announced, we said we anticipated a close review of the agreement given its scope, and we continue to be hopeful that it will close early next year."
If the request is more than pro forma, though, the DOJ is looking in the wrong direction. Google controls about 65 percent of the search market, Yahoo weighs in at 20 percent, and Microsoft has eight percent. So even if the Microsoft-Yahoo deal goes through, that means that their combined share --- 28 percent --- is still less than half of Google's. If there's any monopoly on search, it's Google's.

Anti-trust litigator Matthew Cantor, partner at Constantine Cannon LLP in New York, told Computerworld that

"Most deals clear without a request for additional information. This is not run-of-the-mill. The government believes there are potential antitrust concerns raised here. They would only request additional information if there was some kind of presumption that the deal will cause antitrust effects."
Cantor argues that because the Microsoft-Yahoo deal will reduce the number of competitors in the search market, it's anti-competitive. I think he's wrong, though. The way things now stand, if there is no Microsoft-Yahoo deal, Google will keep increasing its market share. Microsoft will be able to survive and stay in search, but it's not clear that Yahoo will. So the competitors will be reduced in any event, and Google will get an even bigger share of the search market.

Combined, Yahoo and Microsoft may give Google some competition; separately they can't. So, in fact, the deal may eventually make the search market more competitive, not less.

The biggest anti-competitive danger to search is the market leader, Google, not Microsoft and Yahoo. If the feds squash the Microsoft-Yahoo deal, they'll only make sure that Google becomes even more dominant.