Microsoft’s sumo match with Google
 |
| Why the bid for Yahoo? Microsoft CEO Steve Ballmer is prepared to take drastic measures to make sure Google doesn’t shove the software giant out of the ring. Photo: Microsoft |
The depth of Microsoft’s online problem became clear 18 months ago, when Google trumped its bid to handle search advertising for MySpace, the popular social networking site.
MySpace owner News Corp. (NWS) liked Microsoft (MSFT) well enough. But it had to go with the money. Because Google (GOOG), the top search engine, could guarantee a larger audience and thus more revenue in a search deal, it won the MySpace account. “They said to Microsoft, ‘Look, if you can get there in revenue we’d prefer to go with you,’ ” said a source familiar with Microsoft’s side of the negotiations. “It came down to a pure economic decision.”
Technology battles often unfold like sumo matches, where the biggest companies win by pushing opponents around – and Microsoft, the world’s largest technology company by market value, has dominated the wrestling ring for years. But in the online world, Microsoft finds itself in the unusual position of small fry, getting shoved aside by Google.
Microsoft CEO Steve Ballmer has cited Microsoft’s online size disadvantage as the reason he is pushing ahead with a hostile bid of more than $40 billion for Yahoo (YHOO). To get the deal done, he is prepared to break two unspoken rules that have guided Microsoft purchases in the past: Microsoft never buys mega-companies, and it never forces itself on folks who don’t want to be bought.
The reason why Ballmer is willing to take drastic measures? Google is doing to the online advertising market what Wal-Mart (WMT) did to small-town retailers. Much as Wal-Mart turned its huge selection and crowds of customers to out-sell competitors, Google has used its search engine’s popularity to pull in advertisers and get them more bang for their marketing buck. Just as many manufacturers feel they must sell their products through Wal-Mart to reach consumers, advertisers feel they must deal with Google to get results. As Microsoft has lost ad deals time and again, it has become clear to executives that they need to take a bold step.
“Microsoft has been slow to gain critical mass in an area where this is the key to success,” Goldman Sachs analysts wrote in a note earlier this year. “The online advertising industry has the growth and market potential to move the needle, even for a company of Microsoft’s size.” A combination with Yahoo would arguably give Microsoft a greater share of the online audience, which should drive more searches, attract more advertisers, and bring in more money.
Back to the wrestling metaphor, there is more at stake for Microsoft than just the embarrassment of losing. The software giant, which rakes in billions of dollars in cash every quarter from sales of its Windows operating system and Office productivity software, is used to getting occasionally manhandled by opponents when it enters new markets. But in the past, Microsoft has always been able to use its juggernaut size and financial resources to gradually wear down opponents. But with Google, that old wrestling technique just isn’t working in online advertising.
By itself, Google’s advertising dominance might not be such a big problem – except that the online company is using its advertising bulk to wrestle its way into markets that Microsoft has long dominated. Google’s online-based software for documents and spreadsheets offers an alternative to Microsoft Office, and its relationship with the organization behind the Firefox web browser threatens Internet Explorer. Perhaps most alarming to Microsoft, Google has aggressively supported non-Microsoft cell phone software through its promotion of its own Android phone software and its services for Apple’s (AAPL) iPhone.
Microsoft has pooh-poohed Google’s software efforts, pointing out that Google’s software lacks the features and polish of more mature offerings, and that Google’s software efforts aren’t profitable. But even as it downplays Google’s efforts, there’s clear cause for worry: These are the same put downs Microsoft competitors like Apple, Netscape and Palm (PALM) once aimed at Microsoft when it challenged their products with Windows, Internet Explorer and Pocket PC. Tech historians know how those battles turned out; because Microsoft’s core businesses allowed it to keep improving its new products, it eventually surpassed its rivals.
To keep Google from accomplishing the same trick, Microsoft needs to mount a convincing challenge in online advertising. And to do that, Microsoft has to get big, fast. That’s why, even though Yahoo is resisting a deal, Microsoft will likely move quickly to get a deal done as soon as the end of 2008. A source with knowledge of Microsoft’s legal strategy says that once Microsoft makes shareholders an official offer to buy out their shares, federal regulators can begin reviewing the deal – a process that Microsoft believes could be wrapped up in six to nine months.
Why the need for speed? Google gets stronger by the day. And once Google gets international approval for its purchase of ad powerhouse DoubleClick — a development that could happen soon — its Internet empire will begin to gather so much momentum, and size, that it might shove Microsoft out of the online advertising ring for good.
What? You all know it is impossible for any entity to have 100% market share of anything. Let Google be Google; Microsoft needs to quit being all things to all people and pull back and improve what it already has; alot of broken software. Get real Steve.
While either way this argument goes, look at the work the two companies are doing, and then determine which would be better for the consumer.
How much has Microsoft done with open source or open protocol works? While Google is a corporation out for profit just as any other one is, Google puts its money into open source projects.
Microsoft just simply is not able to create the momentum that they need on their own, so they do what any other desperate corporation would do. Buy out enough until they have the momentum they need. Microsoft is playing a losing game, and is far out of its leauge.
Google is not the best search engine and has become an out of control beast on the internet.
Posted By Brad, NY, NY
____________________
Please explain your position.
Can Microsoft close the purchase of the
search engine Yahoo!? Definitely not.
Google is not the best search engine and has become an out of control beast on the internet.
By bidding offer to Yahoo, Microsoft said that they are NUTS in the online business. They can never accomplish to compete with Google. The trick of gathering new software and improve it and throw it on consumers does not work in the online world. Google is a way ahead in the competition – so, MSN – your efforts are waste !!!
OK, you guys play around Google and Microsoft and there are companies which are in the hiding make Google, MSN, and others that this is child’s play. Walmart’s comparison is not accurate and people can move away from Google and they are one-click away.
Check these companies out – http://www.visvo.com, http://www.wikia.com, http://www.mahalo.com...
Disclosure – I am not associated with these companies in any way.
Jorge and Ryan are both misguided.
Jorge says, “when was the last time you got something for free and from who?”
Let’s see:
Windows Media Player – Microsoft
Internet Explorer – Microsoft
Free stuff from a big company. Oops, I just compared Google to another large company. If you think a company gives away free products or services to the masses for some other purpose then to generate revenue, then you are in fact a moron?
Those free services are wonderful for us all, but they cost someone money, and that someone is advertisers. People who buy advertising in your local “free” phone book also understand this.
The article has nothing to do with how happy the employees are nor does it compare specific products and services. It compares the fact that the two companies use techniques to out sell their competitors. The techniques, methods, products, employee benefits, etc. are different, but the results are the same – To monopolize.
As long as you’re using Google’s free stuff and not actually doing business with them, you really don’t know what you’re talking about.
I think Google is a great company, but the comparison was not misguided.
Who cares about Wal Mart? Not even in a comparable industry (different dynamics surrounding the retail industry & the software/Internet marketing industry).
Here is the real reason why Google will be surpassing Microsoft in the software arena. Microsoft has had a history of creating their own standards and having a closed programming environment. Google understands the power and effectiveness of Internet connectivity and Google’s approach has been more open source on a lot of their endeavors. They encourage the online programming community to create and promote software tools that benefit the entire online community instead of finding strategies to gouge people later on.
Many in the computer literate world (incl. me) dislike the fact that Microsoft tries to embed their software in every aspect of their OS. This has a tendency to create bloated software (something that doesn’t benefit the consumer). No wonder why people (incl. management in Google) promote open source projects. One example of this is Open Office.
Microsoft needs to fundamentally change their strategy and stop trying to shaft people. Most people don’t enjoy being shafted or having Microsoft products shoved down our throats just because we may choose to use a Windows-based OS.
ok Jon you got me, not a “bad analogy”. But it’s not good either;) Good article! And I really feel Microsoft is out in the cold and won’t be able to catch up to Google; even if they do a hostile takeover of yahoo. All the good employees will leave yahoo and start something up themselves most likely.
that post by Ryan is so very correct and strong. comparing google to walmart is a joke! look, you can’t compare google to any other large company out there because no other company that makes revenue like google is giving away services for free to as many people across the world.
Just think about it, how many of you use 1 google product? how much did you pay for it? when was the last time you got something for free and from who?
you never see google employee’s protesting/fighting/begging for better benefits and/or pay.
great article bad analogy;)
google rules!
From Jon Fortt: But think about it from an advertiser’s perspective. Google’s so big partly because it offers the masses something for cheap (or free), and thus it can afford to get the best terms from advertisers (compared to rivals like Yahoo and Microsoft). Sound familiar?
You obviously have not read your Wal-Mart history. During the early 90s when, as you say, Wal-Mart was trampling communities, it topped both Fortunes Most Admired and Best Companies to Work For lists.
.
despite its 60%+ web ads market share, the Google’s “omnipotence” is a pure illusion since ALL present and future Google’s services can be replicated (and better made) while its advertising market share can be reduced when competitors like Microsoft-Yahoo will offer lower ad prices
————————————–
http://www.NewSpaceAgency.com/
.
wow. I would expect something like this from and an apple fanboy.
Google is no Walmart; what a misguided comparison. Walmart by and large tramples communities by pushing out the little guy all over the country. Plus Walmart is guilty of mistreating their own employees.
Google, on the other hand, is rated as one of the best companies to work for in the world. Plus, Google is a leader in humanitarian issues (i.e. their headquarters is energy neutral).
Google gives generously to ordinary people every day through gmail, google apps, google base, maps, etc…
Google is NOT another MacDonald’s, Starbucks, or Walmart.
Go Google!!!
- Google Chrome OS vs. Microsoft Windows [video]
- iPhone app store turns 1: Anyone making real money?
- Techmate: HP thin laptops, legal gambling, and Android [video]
- Techmate: Twitter could get hurt by its own hype [video]
- Techmate: Apple with or without Steve Jobs [video]
- Apple with and without Steve Jobs [video]
- With the iPhone, Apple must now try harder
- Palm Pre review: Finally, a worthy iPhone rival [video]
- SanDisk says the iPod won
- Yahoo CEO says everything’s for sale, at a price
- I personally would not own any produc... More
- Why support Ballmer? He's a buffoon. ... More
- RIM gained market share by their "2 f... More
- HIlton Head - The name is Jerry Yang ... More
- Waiting for your directons & guid... More
- If at&t would just lower their un... More
- I have to agree with the comments. In... More
- Enaugh with the "multiple application... More
- You vastly overstate the changed land... More
- What about RIMM's profit margins with... More
A senior writer for Fortune, Jon Fortt focuses on technology and innovation in Silicon Valley - a subject he's been reporting on since his days as a rookie reporter for the Lexington (Ky.) Herald-Leader. Before joining Fortune in 2007, Jon had reporting and editing stints at Business 2.0 magazine, and the San Jose (Calif.) Mercury News, Silicon Valley's hometown newspaper.
Make no mistake. Marketing dollars spent on online advertising is incorporated in the price of the product or service. There is no such thing as free lunch.