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What's new? Google opposes Microsoft's acquisition of Yahoo

Just days after Microsoft Corp.'s $44.6 billion bid for Yahoo Inc., rival Google Inc. has opposed the deal, claiming it is a threat to the underlying principles of the Internet.

Google's dislike of the potential deal is no surprise as it challenges the company's position in the online search, display advertising and mobile arenas.

"The openness of the Internet is what made Google -- and Yahoo -- possible," said David Drummond, senior vice president of corporate development and chief legal officer at Google, Mountain View, CA, in a Google blogpost. "A good idea that users find useful spreads quickly. Businesses can be created around the idea. Users benefit from constant innovation. It's what makes the Internet such an exciting place.

"So Microsoft's hostile bid for Yahoo raises troubling questions," he said. "This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: openness and innovation."

On the other hand, Microsoft believes the deal will establish a more competitive marketplace and levels the playing field. As of now, Google is the No.1 online search and advertising company.

"The combination of Microsoft and Yahoo will create a more competitive marketplace by establishing a compelling No. 2 competitor for Internet search and online advertising," said Brad Smith, general counsel for Microsoft, in a statement. "The alternative scenarios only lead to less competition on the Internet.

"Microsoft is committed to openness, innovation and the protection of privacy on the Internet," he said. "We believe that the combination of Microsoft and Yahoo will advance these goals."

The Yahoo and Microsoft merger is clearly an attempt to create a company that has a chance in challenging Google's increasing clout in the online advertising market, said Roy Shkedi, CEO of AlmondNet, New York.

"The question is whether Yahoo and Microsoft, which each failed separately when trying to compete with Google, will be able to compete with Google more successfully when combined," Mr. Shkedi said. "I am looking on the merger in light of market trends.

"As people become more Web savvy, they spend less time on the portals and more time on the long tail, which is why all the large players have been repositioning themselves in the last year as ad networks and ad exchanges looking to provide advertisers with a main point of contact through which they could buy online media on the portals and elsewhere," he said.

Yahoo's management and board of directors haven't accepted Microsoft's bid yet. However, Google's opposition may help Microsoft get Yahoo's approval as both companies have always attempted to outdo Google. So it's fair to ask if Google's outward worry regarding the acquisition will push Yahoo to accept Microsoft's bid.

Interestingly, Google is the last company that should talk about market dominance.

Google receives approximately 75 percent of paid search revenues worldwide and its share continues to grow, according to Mr. Smith.

Google currently has more than 65 percent search query share in the United States and more than 85 percent in Europe. Microsoft and Yahoo, on the other hand, have roughly 30 percent combined in the U.S. and approximately 10 percent combined in Europe.

This data makes observers wonder whether the deal really does threaten the underlying principles of the Internet or if it's just a threat to Google.

Expect scrutiny from antitrust regulators as well as Microsoft's nemesis, the European Commission, which also scrutinized Google's recent acquisition of online ad exchange DoubleClick.

Google went through an eight-month investigation until the acquisition was finally approved by all the necessary organizations. Google's buyout of DoubleClick increases the Internet giant's strength of data collection and reach as well as dominance in online search and display advertising.

"This hostile bid was announced on Friday, so there is plenty of time for these questions to be thoroughly addressed," Microsoft's Mr. Drummond said. "We take Internet openness, choice and innovation seriously. They are the core of our culture. We believe that the interests of Internet users come first -- and should come first -- as the merits of this proposed acquisition are examined and alternatives explored."