Google launches attack, says deal will hit innovation

Google raised the specter of Microsoft using its proposed $44.6 billion acquisition of Yahoo to gain illegal control over the Internet, underscoring the online search leader's queasiness about its two biggest rivals teaming up.

The critical remarks, posted online by Google's top lawyer, represented the Mountain View-based company's first public reaction to Microsoft's unsolicited bid for Yahoo since the offer was announced on Friday.

"Microsoft's hostile bid for Yahoo raises troubling questions," David Drummond, Google's chief legal officer, wrote. "This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: Openness and innovation."

Google's opposition isn't a surprise, given that Microsoft views Yahoo as a crucial weapon in its battle to gain ground on Google in the Internet's booming search and advertising markets.

Redmond-based Microsoft has been trying to depict a Yahoo takeover as a boon for both advertisers and consumers because the two companies together would be able to compete against Google more effectively.

But Google is painting a starkly different picture, asserting that Microsoft will be able to stifle innovation and leverage its dominating Windows operating system to set up personal computers so consumers are automatically steered to online services, such as e-mail and instant messaging, controlled by the world's largest software maker.

Google pointed to the way Microsoft previously used Windows to help extend the reach of its Web browser and other applications a strategy that triggered a US Justice Department lawsuit alleging the software maker illegally used its operating system to stifle competition. The dispute ended with a 2002 settlement that required Microsoft to abandon some of its past practices.

"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.

Brad Smith, Microsoft's general counsel, said preventing Microsoft from buying Yahoo would undermine competition by allowing Google to become even more dominant than it already is on the Internet. "Microsoft is committed to openness, innovation, and the protection of privacy on the Internet," Smith said. "We believe that the combination of Microsoft and Yahoo! will advance these goals."

If they get together, Microsoft and Yahoo would have about 16% of global search market, far behind Google's 62% share, according to comScore Media Metrix. But Microsoft and Yahoo are far bigger than Google in e-mail and instant messaging, and conceivably would be in a better position to squash rival services if they combined.

If Yahoo accepts, antitrust regulators in both US and EU are expected to begin an exhaustive review that some experts think could last a year. Microsoft believes it could get the necessary approvals to take over Yahoo late this year.

If nothing else, Google probably will try to raise enough alarms about the Microsoft-Yahoo deal to delay its approval for as long as possible.

By doing so, Google would have more time to draw up plans to counteract the combination.