[tt] NYT: Deal That May Create More, Not Less, Competition

[Premise Checker]

In most industries, a merger of two major companies would cause
everyone else to panic over a decline in competition.

Deal That May Create More, Not Less, Competition
New York Times, 8.2.2 (our 40th wedding anniversary)
http://www.nytimes.com/2008/02/02/technology/02google.html

By LOUISE STORY

But in the case of the online advertising market, advertising and
media executives said on Friday that they liked the prospect of a
combined Microsoft and Yahoo. Google, they said, has become so
dominant in its grip over the online audience that the merger might
be the only way to produce a competitor strong enough to face off
with it.

"It's so reductive to say `Google is evil' or `Google owns
everyone,' " said Sarah Chubb, president of CondéNet, the digital
arm of Condé Nast. "But what it comes down to is, competition is
good for everyone in the marketplace."

And competition, Ms. Chubb and other executives said, would surely
be increased if Google's foes bulk up. Despite more than a year of
courting advertisers and media companies, Microsoft continues to lag
Google in online ad sales and in its share of the consumer search
market. Yahoo, once a prime competitor to Google, has been slipping
since the departure last summer of several ad sales executives who
had deep relationships with ad agencies, the executives said.

Google, on the other hand, continues to expand its ad revenues at
rates nearing 30 percent a year, and it owns the sites with the most
total worldwide traffic. Google also received good news last month
when the Federal Trade Commission cleared its merger with
DoubleClick. That company delivers display advertisements for Web
sites and has deep relationships with many media companies. (Google
is still waiting for clearance from the European Commission.)

Many people in traditional media companies and ad agencies had
started thinking that Google had simply won the battle. Just two
weeks ago, the Publicis Groupe, one of the largest ad holding
companies, announced that it had been working closely with Google to
develop advertising technologies -- becoming the first major player
in traditional advertising to publicly embrace Google.

Other ad executives have been more cautious in their involvement
with Google. Martin Sorrell, chief of the WPP Group, another
advertising conglomerate, labeled Google the "frenemy" in 2006.

A WPP Group executive said Friday that Microsoft's $44.6 billion bid
for Yahoo was great news.

"It has to be good to have more than one strong company," said Mark
Read, director of strategy for the company, which owns ad agencies
like JWT and Ogilvy & Mather. "It is good for investment. It is good
for competition."

A combined Microsoft and Yahoo would beat Google in Web traffic and
come closer in ad revenues. Most importantly, the pair would give
Google a greater challenge as it tried to enter display advertising,
because Yahoo has the largest share of that market.

Google made most of its fortune through small text ads that are tied
to Web searches or other content on a page. But media companies
expect much of the growth in online advertising to come from display
ads -- flashy pictures and videos that are purchased by companies
like Coca-Cola and Procter & Gamble.

There are companies that would not be happy with a deal for Yahoo.
Time Warner, for example, is expected to try to spin off its AOL
unit, and Microsoft and Yahoo were widely considered to be possible
bidders.

"AOL missed its chance," said Shar VanBoskirk, an analyst at
Forrester Research. "I've been thinking: would Google have any
reason to buy AOL? I just don't think they need it."

Consumers also may not like the idea that data about more of their
Web meanderings would end up under the same roof.

Part of the allure of the Internet for advertisers is the potential
to use consumer data to deliver different ads to different people,
based on their interests. Google has long told investors that it
aims to be a pipeline for all advertising in the future, on the
Internet and elsewhere, and the company is experimenting with ways
to use data about consumers to deliver targeted television and
cellphone ads. A postdeal Microsoft would have a bigger trove of
data about Web users and could take advantage of it across more
sites.

In the short run, a stronger Microsoft might force Google to lower
the cut of revenue it takes from media companies when it places ads
on their sites. But in the long term, traditional media companies
may find themselves more beholden to the technology that Google and
the combined Microsoft-Yahoo develop. Ms. VanBoskirk went so far as
to suggest that media companies should stop trying to sell ads on
their own and, instead, license their content to the technology
companies.

Advertising executives said they expected more shakeouts.

"Whoever the players are, they need to be strong," said Rishad
Tobaccowala, chief executive of Denuo, a unit of the Publicis Groupe
that focuses on emerging and future technologies. "While Google
might be one player and Yahoo-Microsoft another player, the other
global players might be Nokia, China Mobile, Apple plus Disney."

"Let's not underestimate how early we are," he added.