Seeing Google Through Microsoft Goggles

Take Microsoft (Nasdaq: MSFT  ) , age it by a decade, and you've got Google (Nasdaq: GOOG  ) . Or at least that seems to be the thinking at the Department of Justice nowadays.

This week, Uncle Sam hired veteran antitrust attorney Sanford Litvack, leading to rumors that the Feds are preparing to file antitrust charges against the Big G over an ad deal with Yahoo! (Nasdaq: YHOO  ) . Steve Ballmer must be dancing like a crazed monkey.

But this is a stupid idea, even if it doesn't seem so at first.

Meanwhile, at the intersection of Park Place and Boardwalk ...
The argument in favor of intervention is simple. Google dominates search and thereby search advertising. Maybe not to the same extent as Mr. Softy dominated PC operating systems in the '90s -- Google accounted for roughly 71% of searches in August, according to Hitwise -- but dominance is dominance. Once you control at least two-thirds of a market it's time to consider the m-word. (You know, the one that rhymes with "schmanopoly" and is also a board game from Parker Brothers.)

The argument against intervention is more complex but also more important. It comes down to control. Microsoft had an iron grip on the PC market in the '90s. No amount of delays or bugs with Windows 95 and 98 would change the equation for Apple (Nasdaq: AAPL  ) . Not even Microsoft's ill-fated "Bob" user interface could create an opening for Mr. Mac. Switching from Windows to the Mac OS was too cost-prohibitive. You'd be sacrificing software needed to do your job or run your business -- software not available for a Mac.

I'll take "stupid ideas for a software company" for $800, Alex
Contrast that with Google. Are switching costs high in search? How about search advertising? I'd say they're almost nonexistent, which means that Google has share but not control.

Consider Yahoo!, which worked with plenty of other ad distributors before Google. So why the switch? Money. Yahoo! estimated it would make as much as $800 million more in its first year working with the Big G than against it.

And what of search? Do you really believe that Google's search engine is the best we'll ever see? I have a Dilbert cartoon from the mid-'90s on my office wall that mocks a would-be entrepreneur who proposes a "word processing program for Windows" in a meeting with venture capitalist Dogbert. The ensuing exchange:

Dogbert: "That's an interesting concept. I wonder if twenty dollars would be enough."
Entrepreneur: "To start a software company?"
Dogbert: "No, to pay our waitress to beat you with a loaf of French bread."

Dilbert creator Scott Adams is a wickedly funny guy, but that's not the only reason we find humor in the strip. We laugh because it's true, perfectly illustrative of the futility of competing with Microsoft on its home turf during its heyday. Now, can you think of anyone -- any well-funded start-ups aiming to beat Google at search? How about Powerset? Cuil? Radar Networks?

And don't forget the big guys: Baidu.com (Nasdaq: BIDU  ) in China and Time Warner's (NYSE: TWX  ) AOL and IAC's (Nasdaq: IACID  ) Ask.com here.

Can I take your lampshade, Uncle Sam?
Look, I get it. I know that Google is upending the newspaper industry. I know that it dominates search. It's a winner in the ad business, too. Unless, of course, you're talking about Web display ads, in which case Fox Interactive and Yahoo! lead and Google ranks fifth. Or in-game ads, where Mr. Softy is Massive.

Uncle Sam can't make this argument. He'd be like Mr. Lampshade at last year's holiday party. "Buy me another drink, son," Mr. Lampshade slurs, confident that your deep pockets are deep enough.

Sober up, sir. Slough off the shakedown. You can't PhotoShop today's Larry and Sergey to resemble yesteryear's Mr. Bill.

Get your clicks with related Foolishness:

Fool contributor Tim Beyers had positions in Google's shares and 2010 LEAPs at the time of publication. He also hunts for the best of tech as a contributor to Motley Fool Rule Breakers, which counts Baidu and Google among its portfolio holdings. Here's how to try this market-beating service free for 30 days. Get access to all of Tim's Foolish writings here.

Apple and Time Warner are Stock Advisor selections. Microsoft is an Inside Value pick. The Motley Fool's disclosure policy had to restrain itself last night after Mr. Lampshade spilled a beer on its shoes at a search industry pity party.


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  • Report this Comment On September 11, 2008, at 4:36 PM, oddvan wrote:

    The barrier to entry in the search market is staggering. That alone gives dot gov a reason to keep a close eye on goog.

    Google has 10,000 people, billions of dollars and sever farms around the planet.

    Suggesting that a well funded start up is going to take search away from google is just silly talk that I would expect from a fanboy who wants to protect goog.

    MSFT and Yahoos failure to even hold on to market share proves that one can not just throw a bucket of money into the mix and take search away from google.

    The challenges that face anyone tackling GOOG are huge, to even compete you access to vast amounts of users, you need to be able to service those users in fractions of a second and you need to be right almost every single time. And even when you do all that you need them to trust and like your company otherwise they will not click through and earn money for you.

    Yahoo is planning to work with google not becuase it wants to but because it HAS to. Yahoo search is on its last legs Google has all but defeated it.

    Partnering with other software companies is just how MSFT did it. Goog is just embracing and extending. Where will yahoo be when every time they earn a dollar google gets one too.

    Yang is killing yahoo be joining forces with the very company that will end its days.

  • Report this Comment On September 11, 2008, at 4:55 PM, TMFMileHigh wrote:

    Hello oddvan,

    Thanks for writing but the facts simply aren't on your side in this case. The barrier to entry in search is so small that Cuil, a poorly-funded start-up, indexed three times the Web content Google did with just 150 servers.

    No, I'm not saying Cuil is going to displace Google. I am saying that there are dozens of Google search competitors and VCs are funding new ones daily.

    Foolish best,

    Tim

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