Instead of complaining, Google should make bid for Yahoo

After Microsoft made a $44.6 billion bid for Yahoo last week, everyone was waiting on bated breath to see what Google would have to say about it.

And in typical industry fashion, the company currently on the wrong side of a major deal has come out in protest.

In a statement on the company's website, Google's Senior Vice President, Corporate Development and Chief Legal Officer, David Drummond indicated that his company is not all pleased with Microsoft's bid.

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

Please. By trying to take the "high road", Google sounded petty and made itself look foolish. And if the company really wanted to do something about it, it should stop complaining and make a bid for Yahoo.

So why should Google make a bid for Yahoo? Before we get to that, let's examine a few reasons why some would say it shouldn't.

Why some think Google shouldn't make a deal with Yahoo

Reason 1: it wouldn't get anti-trust approval

At what point in this country's history did everyone stop applying sound business sense to possible acquisitions and start throwing the term 'monopoly' around? If Google acquired Yahoo, not one person would call this company a monopoly. Sure, Google would control over 80 percent of the US search market and its advertising business would grow a bit, but to say it's a monopoly is ludicrous.

By its very definition, a monopoly is a market where there are many buyers, but only one seller. In other words, the buyers have no choice. Is that true in this situation? I can very easily visit Mahalo, Clusty, Microsoft's Live Search, Ask.com and a slew of others if I don't like Google's new service. And on the advertising side of things, there are still a bunch of services available to companies.

Please. If Exxon and Mobil's merger was OK'd with nary a blink by our lawmakers, I seriously doubt they will balk at a Google-Yahoo deal.

Reason 2: It doesn't fit into Google's core strategy

Nonsense. You mean to tell me that Google wouldn't want to acquire Yahoo for the sole purpose of commanding more than 80 percent of the US search market? Beyond that, it wouldn't want Yahoo even though it could control the company's advertising revenue stream and put Microsoft out of contention in one fell swoop? Ridiculous.

Why Google should acquire Yahoo

Reason 1: It has the cash to do it

When it comes to this business, only three companies have enough cash on hand to do just about whatever they want -- Apple, Microsoft and Google. As it stands, Google has about $6 billion in cash on its books and makes roughly $1.2 billion each quarter, which is then contributed to its cash fund after allocating some of those earnings to investments.

Much like Microsoft's deal, Google should make every attempt to offer shareholders the opportunity to acquire Google stock or receive cash subsequent to the agreement between companies. And as Ballmer pointed out in his letter to Yahoo, Google's deal should be "subject to pro-ration so that in the aggregate one-half of the Yahoo! common shares will be exchanged for shares of [Google] common stock and one-half of the Yahoo! common shares will be converted into the right to receive cash."

And as long as the deal sticks to those guidelines, Google would easily be able to afford the deal without dipping into long-term debt to do it.

Reason 2: It makes sound strategic sense

Let's face it -- no one in their right mind is saying that a Google-Yahoo merger wouldn't be good for both companies involved. Not only would Yahoo be able to get out from under its poor management, but Google would be able to solidify itself as the most powerful brand on the Internet.

As I mentioned earlier, this deal would mean Google could command almost 90 percent of the search business and its advertising capabilities would be second to none. And with Yahoo's recent push to increase mobile advertising, Google could finally make a push in that industry as well.

Reason 3: Microsoft, Microsoft, Microsoft

Can you imagine what it would do to Microsoft if Google walked in and offered $50 billion for Yahoo, which then accepted? Not only would Microsoft finally be the small person on the block, its chances of competing online would be practically nil. Even better, Google would cement itself as the Microsoft of online and could create one of the most powerful companies in the world.

Consider this: A healthy Yahoo running at full steam could mean Google could easily add well over $600 million to its bottom line each year and relegate Microsoft to the back of the pack. For once, Redmond could be the company being bullied.

So what does the acquisition look like? Well, it seems as though Google will need to spend about $50 billion to get the deal done with Yahoo because I doubt Microsoft would go above that figure. Once it's complete, Google would be hard-pressed to find ways to improve its own offerings through Yahoo's, but with the help of scale economics and the ability to leverage the capital and equipment of another major company, it could easily streamline its business model and make for a far more sound organization.

Google needs to stop complaining and start working up a deal for Yahoo. Trust me, it's worth it. If it wins the bid and Yahoo becomes another pawn in its empire, look for Microsoft to lose a significant amount of power overnight. And for Google, that should be reason enough to justify the high price tag.

[dgden]

Dear author, you're nutz. Claiming that Google would control 80% of the market, become the most powerful company online and NOT call that a monopoly - ridiculous.

Your definition of monopoly is deceptive to the average reader, to say the least. Pure monopoly, just like perfect competition never exist! Instead a company may approach that status by being extremely dominant in the field.

Microsoft lost numerous anti-trust related suits brought against regardless of the fact that is wasn't the only software company, doh, nor the only one competing in the OS market - just the bigest and most dominant one.

Yahoo and Google would never be allowed to merge, period! Everything else you said doesn't matter a bit.

[22mojom22]

In response to dgen's comment, I have to say that I think you may be a tad bit off the mark with your willingness to classify a potential Google/Yahoo as a monopoly. Would it have the potential to become a monopoly? Certainly it would. 80% market share is a pretty huge market share with a lot of power. The thing to understand about monopolies though is that when you are talking anti-trust scenarios it is not the percentage of a market that a company controls, but instead what said company does with it's dominant percentage. As the author of the article points out there are many different places on the web where one can go for there searching needs (Mahalo, Clusty, Microsoft's Live Search, Ask.com). These services all access the same internet that Google does and are just as viable as Google for this purpose. So why don't we use these other services? Why do we pull up Google more often then these other sites? For many reasons, it is well marketed, fast and effective. Heck "Google" has even entered our general lexicon as a general term to search for something on the Internet. Google has the dominant market share because they have worked hard to provide an excellent service and position their brand at the tips of our tongues. Why won't Google become a monopoly just by being the biggest? Anti-trust legislation exists to prevent a dominant market player from using their position to maintain that lead through unfairly competitive business practices. This is what got Microsoft in trouble. Microsoft didn't get in trouble because there were more PC's then Macs (or whatever), They got into trouble because they used there market dominance to prevent other companies from entering the market by promoting and developing their own pet software products such as Internet Explorer and Windows Media Player.

Does the potential exist that Google could become a monopoly? Without question, they could make the decision to start using their influence to eliminate the competition, but quite frankly, I don't see why they would need to. Think about it, seriously think how often do you see an add for Google? People just use Google because it has almost become culturally in grained to do so. I use Google products every day (e-mail, searches, and chat) those products have never been marketed to me, I started using Google for internet searches when a friend told me about it, started using G-mail when it came available because a friend invited me, and chat because I thought it was a cool addition when it came available. No one has ever had to sell me on Google. Especially Google, and Google has never tried to stop me from using some other service, the fact that there service works has been all the marketing they've ever needed to convince me.that I don't need to go elsewhere. However I know I still could.

That being said, I would certainly like it if Yahoo and Google merged, then I could manage my fantasy football teams from my G-mail account. (Fantasy Football is the only reason I have a Yahoo account.)

[22mojom22]

Damn, I am a horrible speller. Sorry folks! I hope you get the gist of what I was trying to say though.

[dgden]

I respect your opinion 22mojom22 and you make some valid points. But I do not believe that a merger between Google and Yahoo would be in the best interests of competition. The company with that size would have too much power to destroy it's competitors.

Whether or not it would do so, is irrelevant, because such a merger would give Google the power to do it. Right now there are at least 3 major players in the field: Microsoft, Yahoo and Google.

If Microsoft merges with Yahoo, we'll have two very strong and capable competitors clinched in a fight for market share and customers. Each would have to be very innovative and offer a lot of great technology to attract customers.

If Google and Yahoo merge, Microsoft barely stands a chance. I think the regulatory bodies would see too much potential for monopolistic behavior in a Google/Yahoo merger and wouldn't allow it. Microsoft/Yahoo on the other hand are much likely to be permitted to merge, just because Google is on the other end of the scale.