Microsoft Switches Places with Google

It’s very hard to feel bad for the world’s largest software company but it appears the company has been out maneuvered by Google again. When I saw Microsoft’s Steve Berkowitz at SES last week I was struck by the fact that he failed to communicate a clear strategic vision for the company. In fairness, executives rarely reveal the “white board” details of their roadmaps in such public settings. But there was something missing behind it all I felt.

On Friday, Google announced the acquisition of DoubleClick, filling a gaping hole in its offering: display advertising. Microsoft had been rumored to be the potential acquirer first until the WSJ reported that Google was involved in the bidding. It does appear now, as I suspected, that multiple companies were in talks to acquire the company.

Google has more cash – and apparently more resolve – than most. But it certainly doesn’t have more cash than Microsoft, which sits on a reported $50 billion dollar pile. Buying DoubleClick would have helped Microsoft and kept this asset out of the hands of Google. Instead it was Google that kept DoubleClick away from Microsoft (and Yahoo!).

Why didn’t/couldn’t Microsoft “pull the trigger?” Clearly there was a rationale behind the company’s decision and it’s not simply indecision or hesitation. But that’s the way it looks on the outside.

As I suggested on Friday the PR fallout here is significant. This morning some people are questioning how serious the company is about online advertising. (There’s also a tempered point of view, which argues all remains to be seen.)

And in a unbelievably ironic turnabout, Microsoft is calling (along with AT&T and Yahoo!) for anti-trust scrutiny of Google. (Step back for a moment and savor the irony.) Here’s CNET’s piece and here’s a piece in the WSJ (sub req’d) on the issue.

It’s unlikely that Google’s acquisition of DoubleClick will be prevented by regulators, but Google’s march toward a progressively larger share of online ad revenue has crossed a threshold with this discussion. On April 6th, I wrote this in a post called “Restraint and Regulation“:

Microsoft got into trouble with the US and EU authorities because of aggressive tactics that appeared to be monopolistic and anti-competitive. Part of this was a cultural and management issue — people who were making conscious decisions — and part of it was a function of market position and success. In other words, Microsoft did some of the things it did because it could; it was powerful enough.

But, as they say, Hubris is followed inevitably by Nemesis.

Google is arguably now in a similar, precarious position. Its remarkable success has made it enormously powerful but that power is causing fear and skepticism in certain quarters. And its movements into and experiments with traditional media (though early and uneven) contribute to a perception that Google has become a juggernaut that may be unstoppable. (To some degree, eBay’s failure with its TV auction platform reinforces such a perception, if only indirectly.)

More success — and outcries based on any perceived abuse of power — may bring about unwelcome scrutiny at a Congressional level. I’m jumping the gun here intentionally. But Google’s success and ambition is taking it down a path whose outcome may be regulatory scrutiny, similar to Microsoft but for different reasons.

Google still has lots of fans, but it has come a long way from the cool, upstart search engine it once was. There’s a growing concern out there that Google has its fingers in too many pies and its becoming too dominant. I’m seeing this more frequently now — anecdotally.

I have argued that Google is unlikely to exercise “self-restraint” and stop doing R&D or buying assets, for example, and so the company needs to offer more and more “transparency” to counter growing discomfort over its size and market power.

People talk a lot about the so-called “innovator’s dilemma” (arguably facing Microsoft and others today) but there’s another dilemma that Google is facing now, let’s call it the “juggernaut’s dilemma” — how to respond to market unease at rising power. Clearly the stock market loves and will continue to love what Google is doing but the stock market stands in opposition here to other considerations that grow more important over time: public and political perceptions.

The Ask UK campaign (“Stop the Online Information Monopoly“) that uses a kind of “Orwellian” theme to attack Google indirectly starts to resonate potentially. And the recent developments give “political” ammunition to Jimmy Wales’ effort to build a search engine of the people.

So even as Google succeeds and seems practically unstoppable by competitors, the greater risks it faces increase.

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Here’s a related post: “Could Google Become a Victim of Its Own Success?”

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