No Yahoogle, Welcome Microhoo

This morning Google has announced on the official blog that it will not proceed with the advertising deal with Yahoo. This deal was supposed to help Yahoo withstand the acquisition by Microsoft by offering it a stable revenue stream to survive and support itself. The revenue was supposed to be generated by Yahoo showing Google ads on its sites.

But of course from the very beginning it was quite evident that the deal would raise questions from antitrust authorities and that was exactly what happened. The potential consequences of this deal have been investigated heavily both in the US and in European Union to see if any competition will be left in the search industry once the two major players (and supposed competitors) have common business interests.

Google and Yahoo were supposed to expect a lawsuit from the Department of Justice if they continued with the deal. Obviously it was way too difficult for Google to lobby the deal efficiently enough while Microsoft’s counter-actions were a success - hence today’s decision. But what is now left for Yahoo to do? There are two obvious options now - buying AOL or selling to Microsoft in whole or in part.

While I myself don’t see how merging the struggling AOL with the struggling Yahoo could generate a healthy joint business, I see perfect sense in Microsoft emerging on the stage again. Sure, there were rumors of renewed acquisition talks last month that shot Yahoo stock price up at an amazing rate. Yet Microsoft’s Steve Ballmer clearly stated that there were no talks between the two companies. But what if this entire situation is simply engineered wisely by Microsoft that now has all the chances of buying Yahoo for a price that will actually be reasonable for the software giant? I personally feel it is quite possible that we will see the talks resumed - if not for the entire company, at least for its search division.

The main problem for Yahoo now is clear - Microsoft knows perfectly well that Yahoo has absolutely no choice and hardly many prospects for the future. Sure, Sue Decker insists that the company’s business is growing healthier these days but is it enough to keep it afloat? And I really doubt that the Redmond giant will be all that willing to offer anything remotely close to the $33 per share it initially offered to acquire Yahoo. Yahoo’s Jerry Yang said he did not have regrets at the Web 2.0 summit but he must understand better than anyone else how sorrowful the situation now is for Yahoo. So I honestly don’t think it will take too long for an offer from Microsoft to arrive and for Yahoo to accept it as it does not look like anyone (shareholders included) actually believe in Yahoo’s ability to survive on its own.

Another interesting side in the entire situation is a trend in Google failing to build monopolies these days. It looks like the lawyers over at Google obviously realized they would never be allowed to actually continue with the Yahoo deal for Google to build yet another monopoly. Only a couple of weeks ago Google also faced a similar resistance in Russia where the Federal Antimonopoly Service banned acquisition of a Russian contextual advertising company Begun. And it looks to me that antitrust authorities both in the US and in Russia have finally realized that the internet is a huge business and creating an unnatural monopoly will eventually be very harmful for the markets where such monopolies exist. So the question now is: will Google be able to continue building the amazing empire it is now building when antitrust regulators scrutinize the corporation’s every step?