You Can't Fool This Fool, Google

Don't fall for it. Google (Nasdaq: GOOG  ) spent the weekend bellyaching about the potential combination of Microsoft (Nasdaq: MSFT  ) and Yahoo! (Nasdaq: YHOO  ) , but it's all an act.

Truth be told, Google can't afford to tell you how it really feels. I can.

See, Google has more to gain than lose if Yahoo! takes Mr. Softy's hand. Naturally it can't just blurt that out. It's unbecoming and tactfully incorrect. It has to play the role of the incensed competitor, but only because it benefits Google at the end.

Let's go over a few reasons why the pairing would help Google:

  • Google still has some regulatory roadblocks in sealing its $3.1 billion purchase of DoubleClick. Painting itself as a victim to Microsoft's pointed attack will help grease that deal.
  • Yahoo! publishers and advertisers who view Microsoft as a competitive threat -- and to a lesser extent, vice versa -- may seek sanctuary in the wide open arms of Google.
  • If Microsoft and Yahoo! fail to compete against Google in paid search, the game is over. There is no other company that can aspire to legitimately take on Google, and it would be saving its energy by focusing on one competitor instead of two.
  • Yahoo! and Microsoft's MSN are strong in areas like free email, discussion platforms, and now social networking, which have been historically tough to monetize and highly unattractive to advertisers. Google would love nothing better than for sponsors to have a trashy time on rival ad networks.
  • Weak morale as employees fear labor cuts during the consolidation will make it that much easier for Google to pick off key hires.

The outsourcing dilemma
The only legitimate drawback to the union is that Google would have no legitimate near-term chance at getting Yahoo! to outsource its paid search business to Google. Some analysts have been calling for Yahoo! to consider the proposal, suggesting that Google's larger inventory of higher-paying ads would be a more cost-effective way to monetize Yahoo!'s page views.

This morning's Wall Street Journal cites "people familiar with the matter" in reporting that Google CEO Eric Schmidt called Yahoo! chieftain Jerry Yang on Friday. Perhaps it amounted to little more than Schmidt channeling Terminator 2, with Schmidt muttering, "Come with me if you want to live," in a thick Schwarzenegger accent.

The conversation should not suggest that Google may want to bid for Yahoo!. If regulators are having a tricky time buying into the DoubleClick purchase, the walls would echo with laughter over a proposed $45 billion-$50 billion offer from Google.

And just so we get this straight, don't kid yourself into thinking that someone else is going to top Microsoft's offer. TechCrunch ran a story over the weekend, suggesting that News Corp. (NYSE: NWS  ) may make a play for Yahoo! This is the same News Corp. that has its dot-com gem MySpace shackled to a long-term ad deal with Google. Rupert Murdoch knows better than to buy high.

Every potential bidder also has to realize that Microsoft's market cap shed more than $20 billion the day it offered $45 billion for Yahoo!, and this was on a day when the market closed nicely higher. If a company bids higher, won't its market cap take an even bigger hit?

The only real potential for a rival bidder would come from private equity, and the first two steps taken after the purchase would be selling off Yahoo!'s Asian investments and outsourcing paid search to Google.

In other words, Google can't lose.

So I'm not buying the act of Google as a concerned competitor, fearing that Microsoft's acquisition of Yahoo! would cripple the "openness and innovation" that permeate cyberspace. The combination would actually further push Google into market domination.

I see it. You have to see it. Google sees it, too. It just can't say it out loud. The best it can do is wink your way, whisper, "I know what I'm doing," and get back in a fetal position and pretend it's crying when it's really laughing.

It has Microsoft and Yahoo! just where it wants them: cornered.


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