Famed philosopher of power, Nicocolo Machiavelli, would have to smile at Google's maestro market power performance in the storied Google-Yahoo affair.
- As Machiavelli would have advised, Google is laser focused on enhancing its market power.
- Let's review this modern-day Machiavellian plot.
First, Google successfully thwarted what it recognized as the single most serious potential competitive threat to Google -- a Microsoft-Yahoo merger or search alliance.
- From the start, Google publicly made clear that it was opposed to a Microsoft-Yahoo combination and bent on stopping it.
Second, given the deep ties between Google and Yahoo's founders -- Google understood Yahoo's founders were emotionally, philosophically, and culturally opposed to aligning with Microsoft.
- Armed with that inside knowledge, Google set out to facilitate a strategic alternative to Microsoft for Yahoo, by shrewdly encouraging investment analysts to urge Yahoo to outsource its search to Google as an alternative to Microsoft.
- Investment analysts naturally loved the idea, because analysts dislike competition and like the concept of more revenue at less cost flowing to Yahoo's bottom line.
Third, once Google convinced Yahoo they could stiff-arm Microsoft, because they had a commitment from Google to fall back on, Google and Yahoo began to seriously sort through the antitrust limitations of a formal Google-Yahoo relationship.
- From the start both sides knew an outright merger between #1 Google and #2 Yahoo was an antitrust non-starter.
- Thus, they worked with antitrust counsel to set up a clever open-ended ad marketing agreement between Google and Yahoo that would produce much of the benefits to Yahoo that a full outsourcing of search to Google would acheive, without the overt negative trappings of an illegal merger.
- The trick was to mask their kinship-partnership as a technically approvable ad agreement.
Fourth, Google's proposal to voluntarily submit a Google-Yahoo ad partnership agreement to the DOJ for review appears to have created a Machiavellian market power win-win situation for Google.
- If the deal is approved, Google wins because it transforms Yahoo from its leading competitor to its strategic partner, because Google would be Yahoo's single most important business relationship.
- If the deal is blocked, Google also wins because it had distracted and weakened its leading competitors for several important long months, so Google could further and irreversibly extend its dominant market share.
Finally, Google's rolling three postponements of it's DOJ review deadline, after declaring that they would go ahead regardless of the DOJ view, and after declaring that "time is money in this business" -- are also Machiavellian power wins.
- The longer Yahoo remains expectant and dependent on the Google-Yahoo ad partnership to be bailed out of its competitive decline to Google, the more market share lead Google can gain on Yahoo and Microsoft.
Bottom line:
Google has achieved what it set out to do; prevent its primary competitors from gaining on Google.
Moreover, the rollling postponement of the DOJ decision hurts Google's competitors ability to move on and figure out how to best compete with Google going forward.
- In other words, Google wins again because every day with Yahoo and Microsoft forced to the antitrust sidelines, is a great day for Google's market power.
- If Machiavelli were around today, he could be expected to say to his star pupil: "well played, you understand the exercise of market power."
