Friday, February 19, 2010 - The Progress & Freedom Foundation Blog

Antitrust Regulators Approve Microsoft/Yahoo! Search Partnership--Finally!

Last July, Adam Thierer and I argued in a piece that the Microsoft/Yahoo! search partnership should be cause for "celebration among as a good thing for consumers. By providing a strong competitor with a combined 28% market share, the deal should also be a source of relief at Google, which has come under increasing attack for its supposed market dominance." Today, 205 days later, the companies have finally announced that EU and US antitrust regulators have approved their deal.

So... how does a delay of nearly seven months help consumers? Wouldn't we be better off if the two companies had been able to start working together immediately to develop a stronger search engine competitor without this "Mother, May I?" routine?

Last year, I described how Microsoft's delayed entry into search advertising put them at a serious disadvantage in competing with Google. (The company dithered over buying search ad startup Overture and ultimately decided to build its own system--which proved a serious miscalculation.) I'll just reiterate what we said about the Yahoo!/Microsoft deal when it was first announced.

Yahoo!/Microsoft pact is just the latest pairing of Web 1.0 titans struggling to reinvent themselves and compete with Google, a titan that still thinks of itself as a start-up. All three companies will struggle to meet new challenges as search evolves toward the social(reflecting what your friends like), the semantic (reflecting the precise, rather than presumed, meanings of Web content), the personalized (reflecting your own preferences) and the interactive (including user-generated comments or reviews)....

Despite this whirlwind of change, the Yahoo!/Microsoft deal is bound to lead to some hand-wringing from lawmakers and antitrust officials in Washington and Brussels. Regulators already blocked a somewhat similar advertising partnership between Google and Yahoo last year. What unites these regulatory responses is the belief that rapidly evolving digital technologies can be regulated like the static utilities of the analog era-and the failure to understand that antitrust is just another form of regulation.

Instead, policymakers should recognize that the business, user and technological paradigms of the Web are constantly being re-invented and replaced. They shouldn't delay approving this deal, especially as any delay would lengthen an awkward period of uncertainty for the corporate couple at the antitrust altar. Moreover, they should avoid micro-managing the transaction through regulatory blackmail: demanding "voluntary concessions" before giving their blessing.

For many of the same reasons, policymakers should exercise great care and humility when listening to the growing cacophony of calls for antitrust intervention against Google. "Googlephobia" has reached a fever pitch in recent months with plenty of critics in both government and industry hinting that they'd like to see the company crippled with new restrictions or obligations-much as Microsoft was in the '90s. The idea of antitrust regulators becoming a veritable "Federal Search Commission" for such a rapidly evolving sector seems highly problematic. America's high-tech sector is the envy of the world precisely because, generally speaking, the U.S. has rejected heavy-handed regulation of the Information Economy. Indeed, no one knows better than Microsoft how much "antitrust oversight" can hamstring a company's ability to stay ahead of transformative change.

posted by Berin Szoka @ 1:22 PM | Advertising & Marketing , Antitrust & Competition Policy