Should Google be worried?

The news that software giant Microsoft was making a long anticipated move on Yahoo! couldn't have come at a worse time for Google. Google's share price has dropped almost 19% in the last year, with its shares predicted to drop below $500 in the next week.
A unified Microsoft and Yahoo! could well spell the end of the dominance of Google in online advertising. Given the sheer clout of Microsoft and its strength in the desktop arena, and the content of Yahoo! users could find themselves using a new unified service, which would effectively lock out Google, eventually going so far as to even draw users away from its core search engine.
Google has long anticipated such a move, and over the last year has engaged in a string of purchases to bulk up its content offering, the most notable of which is its purchase of YouTube. While YouTube has vast amounts of traffic, what it lacks is the social glue that keeps sites like Facebook and MySpace, growing and receptive. Audiences to YouTube are far more fickle and evidence is emerging that they are starting to use the host of copycat sites that have sprung up.

Do no evil

Despite its mantra "Do no evil", Google has never been one to take anything lying down and is now doing everything it can to scupper the deal, or at least delay it until it can launch a counter offer.
Publicly, Google issued a standard announcement contending that the pairing, proposed by Microsoft on Friday in the form of a hostile offer, would pose threats to competition that need to be examined by policy makers around the world. This is a bizarre tactic, since Google opens itself to the same accusations, in that it controls an estimated 75% of the world's online advertising.
Privately CEO Eric Schmidt has made an approach to Yahoo! CEO Jerry Yang, offering to form a partnership. The problem is, while Google does technology very well, it does content less than well. After all the company is essential a bunch of geeks tinkering with code and refining algorithms. Yahoo! on the other had has made an art of understanding its audience and providing them with engaging and interesting content. Combined with the MSN network, content from Yahoo! could shift the balance of Internet advertising against Google, bringing an end to the dominance of its AdSense platform, and a key revenue generator.

Spread too thin

While Google has engaged in a number of acquisitions in the last year, it has no real experience in integrating such a large company as Yahoo! into its operations and would struggle with any alliance. Microsoft on the other hand has considerable experience turning around struggling companies and extracting maximum value from them in the shortest cycle time.
Google has only itself to blame for this predicament. The company spread its resources too thin (don't forget it only has 10,000 employees), seeking to dominate a vast array of markets, with high barriers to entry.
It was its foray into the world of office software that would have set the alarm bells ringing at Microsoft. With offerings such as Google spreadsheets aimed at challenging the dominance of Microsoft Office, a major cash cow. However, while Google spreadsheets has failed to gain any major traction, all that stumbling around in the dark has awoken the dragon and unless it acts swiftly and smartly will pay a very high price.
  • The opinions expressed in this article are those of the author, and do not represent the views of the International Charter.
  • The International Charter has relationships with the companies mentioned in this article, and the article should be treated as such.