Think the Microsoft-Yahoo Deal Will Increase Competition Against Google? Think Again

Conventional wisdom has it that the combo of Microsoft's Bing search engine and Yahoo's market share will loosen Google's stranglehold on the search market. But there is something worse than a monopoly when it comes to stifling creativity and competition, and, with the Microsoft-Yahoo partnership, we're heading straight for it.

Everybody is talking about what a boost the new Microsoft-Yahoo deal will be for competition in the online search business. The general consensus is that the combination of Microsoft's Bing search and Yahoo's market share will make for a stronger front against Google, resulting in increased innovation and more opportunities and capabilities for Web users.

I'm not so sure. In the short term, this deal will increase innovation and competition. But in the long term, it could end up doing the exact opposite.

How can this be, you ask, when Google has had pretty much a monopoly in the online search market?

I say this because there is something worse than a monopoly for killing new ideas and healthy, strong rivalries in a market. What's worse is when there are a small number of companies-say, two to four-that completely dominate a product category.

Click here to read 10 reasons why the Microsoft-Yahoo deal will be good for enterprise search.

Think about it. In which tech areas can the least innovation and competition be found? A few quickly spring to mind for me, including broadband Internet and wireless cell carriers.

And what do these markets have in common? In all of them, a small number of companies dominate and, in many ways, collaborate to maintain their stranglehold on the market.

Sure, there's some competition for customers among the players, but nothing too serious. And innovation is pretty limited, especially in any way that could become disruptive and change the lucrative business models for any of the dominant companies.

And all of these companies work together-through their own policies and lobbying in Washington-to make it very hard for innovative upstarts to become a threat in any way.

Compare this with a monopoly. Sure, the strongest monopolies have a lot of power. But they also face a very concerted effort to bring them down. Small companies, big companies and even the government are constantly on the lookout for ways to take down the reigning giant. And, in most cases, they do eventually succeed in cutting through the stranglehold that the monopoly had on the market.

Now, I'm not saying this would definitely happen in the current Bing versus Google war. We are talking about two pretty unique companies here. Google definitely does things its own way, and Microsoft has shown that it is almost allergic to collaborating with perceived competitors.

But I think the cooperation between companies in a duopoly happens even when the companies don't specifically plan to do it. I'm sure Verizon and Comcast don't like each other much, but they like upstarts that threaten their cash cows even less.

If Google and Microsoft get to a 60/40 split of the search market (a situation that isn't far off), I could easily see them enacting strategies that seem like good business practice to them but have the effect of locking out potential competitive threats or disruptive innovations.

So, in a way, the newly energized fight between Microsoft Bing and Google will increase competition in online search. But will it be a kind of competition that increases innovation and choice for consumers?

Sadly, I think the answer will be no.

Chief Technology Analyst Jim Rapoza can be reached at [email protected]