Digital MarketingSearch MarketingGoogle and Microsoft: Partners?

Google and Microsoft: Partners?

Could Google and Microsoft partner in the short term?

The series New Developments in Local Search continues next week.

A frenzy was sparked by a New York Times story a few weeks ago revealing Microsoft discussed a takeover of Google.

Screaming headline news? Please. No one should be surprised the companies discussed a possible purchase. What’s lost in the takeover what-ifs is the more realistic notion that the companies could partner in the short term.

Google: An Answer to Microsoft’s Build-It Problem?

Back in March, I wrote if Microsoft were shopping for search engines to keep up with the recent purchases of Inktomi, AltaVista, and, Google was the perfect solution:

Microsoft certainly has the cash to make an attractive offer. If you’ve decided owning technology is important, why not purchase what’s widely regarded as the best? In addition, it’d pick up Google’s widely popular sites in the U.S. and around the world while potentially hurting chief competitor AOL.

Of course, Google may not want to be purchased. Even if it did, there would be the real fear a Microsoft-owned Google could taint Google with the public fear of dominance many already have regarding Microsoft. Google already has enough of a challenge combating this fear without a Microsoft connection.

I revisited the notion following Yahoo’s bid for Overture. Microsoft had announced plans to build its own crawler-based search engine. The challenge was suddenly magnified by the need to consider creating a paid-listings system, too.

It’s been reported Microsoft’s made an informal offer to Google at least once. There’s now reason for Microsoft to sweeten the pot. With Google, Microsoft would gain in-house capabilities for editorial and paid listings — mature, industrial-strength, proven systems. Google’s incredibly popular network of Web sites would enhance the deal.

Amid all the hype about the New York Times revelation, no one mentioned that back in June, Dave Winer’s blog, Scripting News, had the first serious mention of a Microsoft bid for Google.

The bid appears to have been tendered in early 2003, so it is news that Microsoft apparently has made another attempt, perhaps a more serious one. But the writing was on the wall. Heck, it was under a giant, flashing neon sign reading, “Watch This Space.”

Now that Google seems headed down the IPO path, it’s unlikely an acquisition would happen.

Google: Able to Go It Alone

Andrew Orlowski argues in The Register that Google needs Microsoft because it’s overly dependent on advertising.

Google is an advertising company. The search engine business is largely a new advertising medium. Some search for information, but many seek products and services.

When Overture made BusinessWeek’s Info Tech 100 list this year, I argued both Overture and Google should be viewed as ad companies. I asked Google cofounder Sergey Brin in August how he’d classify Google. He replied Google is still a tech company, but the technology is linked to media.

Orlowski’s article is wrong about Google not owning enough space for its ads. The site is incredibly popular. It’s a giant, wholly owned billboard. Google isn’t an agency for its site. It’s the media owner.

To dismiss Google’s site is like suggesting a TV network is in trouble because it doesn’t own the other networks. As long as Google’s site is popular (there’s every reason to expect it will be), Google is a major media owner — an enviable position.

Microsoft needs Google more than Google needs Microsoft. That’s why Google hasn’t sold. This doesn’t mean Microsoft’s out of luck. Hardly. Microsoft will continue with its plan to build its own search solution. Expect a serious competitor to Google, Yahoo, and AOL.

Google: Why IPO?

If Google’s strong enough to say no to Microsoft, why go public? The best argument I’ve heard is it’s almost compelled to. A large employee roster will force it to make quarterly public filings.

Barron’s Online reported this before IPO rumors emerged. It’s the same reason Microsoft went public. Bill Gates thought going public would be a “pain.” Sounds eerily like the statements Google’s founders made this year.

The other sound argument is Google’s major investment firms may be putting on IPO pressure to cash in. That, combined with a need to publicly file anyway, is reason enough to move forward with an offering.

What Might Google Buy?

Some think Google needs cash, either to buy or fight Yahoo and Microsoft. Certainly an IPO will provide cash, though the company easily managed a number of acquisitions this year. It apparently had $30 million to offer social networking site Friendster, but its advances were rejected.

Doubtless, Google will buy what makes sense. What might it want? Jack Schofield suggests in The Guardian email may be an area for expansion. That makes sense.

Google once said it was focused on search. These days, it’s “organizing the Web’s information.” E-mail is information. With the growing spam problem, I could see Google acquiring a company such as Brightmail or SpamCop. A plus is this type of service would generate subscription revenue.

Perhaps Google might acquire a company that allows people to sell products online, which would feed into a Google shopping or auction area.

All speculation. No one has a list of Google must-haves, nor should anyone believe just because an IPO will bring in cash, Google will buy, buy, buy.

We saw this thinking during the late ’90s portal wars. Lesson: Buying what your competitors have is no guarantee you’re making the right move. Ask Go/Infoseek, Excite, and Lycos, all of which have a fraction of their earlier traffic, despite playing the acquisition game.

Search Investment Made Early

The Guardian argues Google missed out by not getting the “hot” technology and “big” Web sites of AlltheWeb and AltaVista, neither of which was big in popular usage. “Wide awake” Yahoo got them, along with Inktomi and Overture.

Yahoo bought these companies to play catch-up with Google. Google owns everything these companies offer. It doesn’t need them. It didn’t have to spend $2 billion on cash-and-stock deals, as Yahoo did, to get them.

In light of what Yahoo spent on search over the past year, some believe Google needs the cash equivalent. They fail to understand Google is a home owner. It bought the house when prices were cheap.

Yahoo rented until late last year. By the time it bought, the price of a crawler-based search engine had jumped significantly. Ask Jeeves spent $4.1 million in cash and stock on Teoma in 2001. LookSmart spent $9.5 million in a stock deal for WiseNut in 2002. When Yahoo bought Inktomi, it paid $235 million. That’s 57 Teomas, or 25 WiseNuts!

Who Wins? Everyone, Probably

The Guardian raises the oft-heard “Who’s going to win the search race?” question. It won’t be the service using “personalization” to prevent switching, as the article suggests. Yahoo and MSN have personalization. It doesn’t stop people from searching on Google.

We’re not likely to see clear winners. Why? Think TV networks. The U.S. has four major networks. None will collapse overnight, though any one will gain or lose viewers, depending on programming.

Search is programming. As long as Google’s remains substantially good, users will tune in out of habit. It’s easy to switch from Google. Ask any smoker how easy it is to quit altogether.

Habits aren’t broken without a reason. Searchers with the Google habit will switch if Google becomes noticeably bad at a time when competitors are substantially better. Some claim Google’s quality has slipped. They often fail to try the same searches at Google’s competitors. I always do, and often find the competitors are no better.

All four major services — Google, Yahoo, MSN, and AOL — will maintain a parity of quality that doesn’t prompt a massive outflow of users.

Google and Microsoft Could Partner Short Term

The Guardian article suggests Google woke the Microsoft “sleeping giant.” It didn’t. Yahoo’s noisy buying spree did. Yahoo gave Google its first serious “in” with Microsoft.

Google has pitched Microsoft on its search services for over a year. It never had a real chance, as Microsoft perceived it as a competitor. Companies Microsoft historically partnered with (Inktomi, Overture, and LookSmart) were “neutral” and not trying to attract their own visitors.

MSN ruled out staying with LookSmart last January. That leaves Inktomi and Overture, both of which are hardly neutral, as they’re now owned by Yahoo Long term, MSN will solve this by building its own in-house services. Short term, the relationship puts cash in Yahoo’s coffers.

The alternative is to partner with Google in the short term. A recent New York Times article discussed a takeover possibility.

Google had to hear the pitch. The company has said on several occasions it would entertain any serious offers, as Google cofounder Sergey Brin confirmed in August when I asked specifically about a possible a sale to Microsoft.

Google heard Microsoft’s pitch, but there’s little doubt Microsoft heard Google’s, too. “Use us,” Google would argue. “We’re far less competitive with you than Yahoo is.”

For the time being, both sides seem to be sticking with the status quo. Don’t be surprised to hear more about Microsoft and Google talking. A takeover is unlikely, cooperation isn’t.

This column was adopted from ClickZ’s sister site, A longer, more detailed version is available to paid Search Engine Watch members.

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