Google cries foul over Microsoft's Yahoo bid

Microsoft's $44.6bn bid for Yahoo raises "troubling questions" about the future of the internet, Google has warned.

A takeover would also create a business with an "overwhelming share" of online communications services of web-based email and instant messaging, David Drummond, Google's chief legal officer wrote in an uncharacteristically forthright post on the official Google blog last night.

"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," he said.

"Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the internet that it did with the PC? While the internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies - and then leverage its dominance into new, adjacent markets.

"Could the acquisition of Yahoo allow Microsoft - despite its legacy of serious legal and regulatory offences - to extend unfair practices from browsers and operating systems to the internet?"

Google's concerns are likely to add to pressure for any tie-up to be heavily scrutinised by regulatory authorities. The US justice department said on Friday it would be interested in investigating any deal on antitrust grounds. European regulators, already examining many aspects of Microsoft's business, are likely to follow suit.

Yahoo's management has yet to say whether it will accept the offer. It is understood to have spent the weekend discussing the $31-a-share cash and stock bid.

Microsoft has made no secret of the rationale behind its unsolicited approach: to create a competitor to Google's commanding position in an online advertising market worth about $40bn last year.

Google dominates the online advertising market's largest segment, search advertising. In the UK, Google accounts for 81% of all online searches, compared with 6% for second placed Yahoo and 5% for Microsoft's MSN, according to the online data group Comscore.

But as the online advertising market expands, to an estimated $80bn by the end of the decade, growth is expected to come from other areas, such as display advertising.

Google is already trying to widen its scope, buying advertising network Doubleclick last year. But it believes that other activities, such as email and instant messaging communication, will become an increasingly important vehicle for advertising. Google has already experimented with tying advertising to emails through its Gmail service.

Drummond said regulators should ask whether a Yahoo deal could "unfairly limit the ability of consumers to freely access competitors' email, instant messenger, and web-based services".

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