The Department of Justice has requested more information and details of the proposed arrangement between Microsoft and Yahoo. The scrutiny could spell disaster for Yahoo if the DOJ ultimately rejects the partnership.
The DOJ earlier nixed a proposed arrangement between Google and Yahoo back in mid-2008. Google pulled the plug upon learning that the DOJ planned to object to the partnership on antitrust grounds. Basically, the partnership would stifle competition and create an unbeatable search engine ad juggernaut.
The apprehension of the DOJ in that case seems warranted. Google has 75 percent of the search engine ad market by itself. That means Google alone sells three times more search engine ads than Microsoft and Yahoo combined. Obviously, if you combine Yahoo and Google together that balance tips further in Google's favor.
The fact that the DOJ rejected the Google-Yahoo partnership probably plays into the more intense scrutiny in this case. Google and Microsoft are both technology giants and fierce rivals. The DOJ can't appear to rubberstamp the Microsoft-Yahoo deal after rejecting the Google-Yahoo deal. The request for more information may be an extreme due diligence for the sake of appearances.
It wouldn't seem like the DOJ should have the same concerns though in this case. As I already noted, Microsoft and Yahoo combined only have 25 percent of the market. Its hard to see how the combined 25 percent would stifle competition or pose an antitrust threat to Google.
Besides, what is the alternative? Google, Microsoft, and Yahoo are the major players in this market, but Yahoo is a skeleton of its former self and seems ill-equipped to do battle with the larger rivals. Yahoo hasn't thrown in the towel and still considers itself a contender, but without this deal its entirely possible that Yahoo folds up its tent and fades away.
This arrangement may be the final lifeline Yahoo has (they already used ‘phone a friend', right?). Without this life support the company could flatline.
Essentially, nixing the deal could be a death sentence for Yahoo which will yield the same competitive landscape as approving the deal. The one difference would be that Google and Microsoft would have to fight for the scraps left in Yahoo's void and Google would most likely be able to extend its dominance.
Looked at from that angle, rejecting the Microsoft-Yahoo deal could ultimately lead to the same result as having approved the Google-Yahoo deal.
Microsoft could still opt to buy Yahoo rather than forming a strategic alliance. But, if the DOJ ends up rejecting the partnership between the two, what are the odds it would approve the acquisition?
Tony Bradley is an information security and unified communications expert with more than a decade of enterprise IT experience. He tweets as @PCSecurityNews and provides tips, advice, and reviews on information security and unified communications technologies on his site at tonybradley.com.