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Google Sits Quietly as Microsoft Vies for Yahoo!

Pia Sarkar

SAN FRANCISCO -- Google(GOOG Quote) remains strangely silent as it watches Microsoft(MSFT Quote) vie for control over Yahoo!(YHOO Quote).

Some believe that the Internet titan is keeping its mouth shut for one reason alone: DoubleClick.

"Because Google doesn't want to risk in any sense provoking the regulators, we think it will stay quiet until the deal (with DoubleClick) closes," says Jeffrey Lindsay, an analyst for Sanford Bernstein.

Google made a play for DoubleClick back in April for $3.1 billion. The deal received clearance from the Federal Trade Commission in December, much to the chagrin of critics, including none other than Microsoft, which argued the merger would give Google too much control over the online ad market.

The FTC decided the merger was "unlikely to substantially lessen competition." Now, Google awaits approval from the European Commission, which is expected to deliver a decision early next month.

All the while, Microsoft continues its pursuit of Yahoo! in what could be the biggest deal to hit the Internet since Time Warner(TWX Quote) merged with AOL in 2001.

Microsoft made its $44.6 billion bid for Yahoo! last month, but so far Yahoo! has resisted. In the meantime, Google has done very little to influence the process, assuming a hands-off approach even though a merger between the two companies could potentially narrow its sizeable lead over its main rivals in the search market.

Lindsay predicts that once the regulatory process for DoubleClick is over -- regardless of whether or not the European Commission rules in its favor -- Google will have a lot more to say on Microsoft and Yahoo!.

The ultimate irony will be if Google uses Microsoft's own arguments against the DoubleClick deal to try to derail the Yahoo! deal.

"It would probably be poetic justice if Google paid back Microsoft in its own coin," Lindsay says.

Google declined comment on a possible Microsoft-Yahoo! merger beyond a Feb. 3 post on its corporate blog by attorney David Drummond, in which he raised questions about Microsoft's intentions.

"Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?" Drummond wrote. "While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies -- and then leverage its dominance into new, adjacent markets."

Google has reportedly backed off any type of partnership with Yahoo! that might have saved it from being swallowed by Microsoft. Early on, Yahoo! was said to be in talks with Google about outsourcing its search ads, but the plan would run the risk of inviting antitrust scrutiny by federal regulators.

Trip Chowdhry, an analyst for Global Equities Research, thinks Google is staying quiet on Microsoft and Yahoo! not to protect its interest in DoubleClick but because it is dealing with its own troubles, which include a declining stock price spurred by stagnant growth in the number of users clicking on paid ads in January. Google shares have slipped 40% from their November high of $741.79.

"Google's strategy right now is to focus on its own business," Chowdhry says. "They got a wake-up call in their last quarter. Then there are the shifts in Web surfers, shifts in the advertisers. Their approach is, 'Let me get act together.'"

Google missed Wall Street estimates in the fourth quarter, and several analysts have subsequently cut their price targets on the stock, although few have actually downgraded their ratings.

Chowdhry says the company has enough on its plate to be worried about a merger between Microsoft and Yahoo!, which he maintains will ultimately be blocked by regulators anyway.

"I think there's nothing that Google can offer," Chowdhry says.

It is still debatable how much of a dent a merger between Microsoft and Yahoo! will even make on Google, which in January captured 56.9% of the search market, compared with Yahoo! with 19% and Microsoft with 12.1%, according to Nielsen Online.

But Lindsay says the average Google shareholder will likely be disappointed if the company doesn't raise a stink at some point.

"From the Google perspective, it has a right to challenge a structural change in the market," he says.

At the same time, a protest from Google could add to any delays that a deal between Yahoo! and Microsoft might face. And that could in turn buy Google more time to tweak its business strategy if a newly merged company comes to being.