Microsoft + Yahoo Scares Google
How a Merged Microsoft & Yahoo Can Take On Google in Newer Markets
Microsoft owns the desktop and the web browser. Buying Yahoo, a world-class internet brand with significant technology, will create new opportunities in emerging markets
Microsoft's bid for Yahoo has surprised some; however, it makes sense when the histories of these companies and their respective technologies are considered. The important question is what strategy would the merged company take in order to compete with Google?
Microsoft's Strategy To Compete With Google
Google dominates the search market in the US and Europe. Microsoft's post-merger strategy could be to leave Google to be the main Internet search facility in these territories, preferring to go after webpage contextual advertising, display advertising and search in emerging markets. Microsoft's strategy could be to allow Google to direct users to a website, but Microsoft would take the revenue when the user clicks advertisements on that webpage.
Microsoft could increase their presence in this market by offering the website owner a larger slice of any revenue earned from a click-through, by contextualising the ads to the page's content more accurately and by offering a better advertiser experience. Search in emerging markets such as India, China, South America and Africa is where the revenues in the medium- to long-term will be earned. Revenues earned here will allow Microsoft to compete within search in the more established territories.
Google Versus Microsoft's Vision Of Computing
Google want to see a future that is web-based, one where all user services (such as email, office applications and social interaction) are based on Google-hosted servers. If this vision becomes a reality, the operating system and desktop-based software become a lot less relevant. As Microsoft earns the majority of its revenue from selling operating systems, desktop-based software and the services that flow from them, Microsoft is rightly concerned about the new web-based direction computing is taking.
Microsoft's original internet strategy based around MSN has not worked as internet users do not want to exclusively use one network, rather they want to consume services and they need a search engine to find them. Google would like to see a future where the desktop computer becomes just four things: a screen, keyboard, mouse and web browser.
Microsoft And Yahoo Will Benefit Web Advertisers and Users
Microsoft is buying Yahoo to access Yahoo's online advertising technology and its other internet-based technologies. The combined company is in a position to be able to seriously compete with Google, increasing competition in the market place, which should bring down the price of online advertising and improve the customer and user experience. The vast majority of Google's net income comes from online advertising.
An entry by a combined Microsoft and Yahoo into this market could hit Google hard. Google's net income in 2007 was $4.20bn. Microsoft's was $14.06bn. Although Google is extremely powerful in online advertising and is a famous provider of some online services (GMail and youtube), Google's reach is currently limited to the internet. A combined Microsoft and Yahoo would be a significant second player in online advertising as well as the dominant player on the desktop and within the enterprise.
Microsoft can then leverage their control of IE, the operating system and its enterprise software to build a more intelligently combined desktop and online computing experience that will leave Google playing catch up. And this is what scares Google.
