Issue of the week: Microsoft bids a bundle for Yahoo

Oh, how the mighty have fallen,

Oh, how the mighty have fallen,” said Joe Nocera in The New York Times. “This may sound like an odd way to characterize” Microsoft, which just announced its willingness to plunk down $44.6 billion for a hostile takeover of Internet portal Yahoo. Yet despite its near monopolization of the operating systems and office software markets, despite its estimated $60 billion in revenue this year, it’s fair to say that Microsoft has failed. How can this be? In a word, Google. In the online world, Google is king, completely dominating the search engine market, which in turn has led to its domination of the rapidly expanding online advertising business. Currently, only 4 percent of Internet searches worldwide are done with Microsoft’s search engine, compared with more than 65 percent with Google. Microsoft now wants to team with Yahoo to try to cut into Google’s lead. But in a sense, Microsoft’s proposed acquisition of Yahoo “serves as confirmation that its glory days are in the past.” In fact, it has fallen so far behind Google that “even after a Microsoft-Yahoo merger, Google would still have twice the search market of its competitor.”

So why has Google launched a fierce counteroffensive against the proposed takeover? asked Michael Liedtke in the Associated Press. Google’s general counsel suggested this week that a Microsoft-Yahoo tie-up would stifle competition. Microsoft, he argued, could tweak its ubiquitous Windows operating system “so consumers are automatically steered to online services, such as e-mail and instant messaging, controlled by the world’s largest software maker.” Just a few years back, the U.S. Justice Department sued Microsoft for abusing its dominance in operating systems. Google fears that what’s past is prologue.

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