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A Net gain

Microsoft's bid for Yahoo might give Google some competition. But is big better than nimble?

February 06, 2008

It has come to this: The world's most powerful software maker wants to buy the country's most popular gateway to the Internet, and yet the merged company would still be an underdog in the competition for online advertising dollars. Even if Microsoft succeeds in its hostile, $44.6-billion bid for Yahoo, the resulting search site would rank a distant second to Google in the number of searches performed -- not to mention the revenue generated from them.

Google's eye-popping lead in the market should prompt its customers to welcome the proposed takeover, in addition to giving regulators good reason to wave the deal through. Size matters in the online advertising business, where networks compete on reach and eyeballs. Advertisers have been intrigued https://adcenter.microsoft.com/ but they've not been thrilled by the comparatively small audiences for its search engines. by Microsoft’s technology for targeted marketing, By narrowing the gap with Google, the combination of Microsoft and Yahoo would give marketers a more credible alternative.

The real competition, though, is over the future of computing. Microsoft has used its near monopoly in operating systems to wring huge profits out of desktop programs, including those for documents and spreadsheets. But with all manner of electronic devices incorporating microprocessors, memory and Internet connections, computing is steadily moving beyond the computer. Although Microsoft, Yahoo and Google are all trying to extend their software, neither they nor any other company is a dominant force. Meanwhile, Google is challenging the core of Microsoft's business by enabling people to do through the Web what they used to do on their PCs. And it has promoted the use of open standards, not proprietary technologies that lock users into any vendor's products.

Those threats to Microsoft will grow as wireless Internet services proliferate and more devices become connected. We're already seeing how quickly the right combination of device, software and service can upend a market. Just look at Apple's iTunes, which toppled Microsoft as the king of music- and video-playing software in a fraction of the time it took Microsoft to claim that crown. So Microsoft certainly needs a better response to the new Internet realities. As does Yahoo, whose popularity belies its recent struggles. Still, the fast-changing nature of the market begs the question of why Microsoft or Yahoo would try to overtake a company as nimble as Google by adding bulk instead of speed. After all, it wasn't too long ago that an Internet also-ran teamed up with a big but fading brand, and the result was AOL Time Warner.

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