I did a double take recently after listening to Microsoft CFO Chris Liddell acknowledge that his company was ready to lose even more money in online services in the near term, if that's what it takes to catch Google. During the company's earnings call last week, Liddell indicated that Microsoft is pouring hundreds of millions of dollars into its online advertising business, an investment he allowed would be "a drag" on the rest of the company.
Outside of the occasional fit of Monkeyboy inspiration, Microsoft's managers are a sober bunch. They don't decide things haphazardly and they don't rush in reaction to current events. But their willingness to dig deep into Microsoft's (enviably deep) pockets in pursuit of Google was a remarkably telling comment. Much like WordPerfect and Borland and Novell, which at one time sought unsuccessfully to play catch-up to Microsoft, the shoe's now on the other foot-- and it's irritating the hell out of Microsoft.
Just how far ahead of everyone is Google? Consider the following, courtesy of Efficient Frontier Insights: Google now enjoys more than a 77 percent share of the search ad market.
Advertisers are putting all of their new search dollars into Google, and pulling money out of Yahoo Search and Microsoft Live Search.
That kind of information was seized upon by Microsoft's top lawyer, Brad Smith, during his recent testimony before Congress. Testifying on the proposed search advertising between Google and Yahoo, he said it was possibly "illegal under the antitrust laws." Monopoly anyone? Of course, there's nothing wrong with being a monopoly, per se. It all depends upon context and behavior. But considering Google's dominance and Microsoft's inability to significantly close the gap in the search business, I'm sure rivals would be thrilled if Uncle Sam finally declared Google a monopoly. That may be wishful thinking.
For an answer, I sought out the opinion of a renowned antitrust expert, Richard Schmalensee, of MIT's Sloan School of Management.
I chose Schmalensee because of his unique vantage point. During Microsoft's antitrust trial a decade ago, Schmalensee testified as an expert witness for the defense, spending hours on the stand sparring with lead government attorney David Boies about the precise definition of a monopolist.
"There are the standard numbers people throw around but I think most people would say you have to decide whether search ad is a market for antitrust proposes. If it is, that's a high enough share. But you also have to look at issues of entry and issues of fragility. How stable is that share and how intense is that market," Schmalensee said.
"There's no magic threshold but with high share levels, you get to be concerned," he continued. "On the other hand, monopolists are allowed to compete. The question is whether the arrangement would stifle competition."
There's the proverbial $64,000 question, isn't it?