Google may seek Yahoo! alliance to rebuff Microsoft

Google is said to be in talks with Yahoo! about creating a business alliance that would help the beleaguered search veteran fend off a hostile takeover bid by Microsoft.

Google has already published a highly-critical opinion of the proposed deal.

Having said that a merger between Microsoft and Yahoo! would undermine the "underlying principles of the internet", Google is reported to be trying to put obstacles in the way of the deal.

The Wall Street Journal reported yesterday that Google chief executive Eric Schmidt telephoned Yahoo!'s Jerry Yang to offer help in rebuffing the bid.

Reuters reported that Yahoo! bosses were considering an alliance with its rival.

Google and Yahoo! held talks towards the end of last year about a potential alliance, and Reuters reported that Yahoo! management is considering a return to those talks.

David Drummond, Google's chief legal officer, released a statement denouncing the deal as the behaviour of a monopolist bent on destroying the internet.

"Microsoft's hostile bid for Yahoo! raises troubling questions," he said. "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."

"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."

A merger between Google and Yahoo! is almost certain to be blocked by competition regulators because the companies operate in similar areas.

Analysts have even cast doubt on the sincerity of Yahoo!'s attempts to find other partners or buyers for the business.

Some view it merely as a tactic to raise Microsoft's $31 a share bid which executives think undervalues the company at a $44.6 billion total.

Google's Drummond said that he feared what could happen if the two companies merged.

"Microsoft plus Yahoo! equals an overwhelming share of instant messaging and web email accounts," he wrote.

"Between them, the two companies operate the two most heavily trafficked portals on the internet. Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors' email, IM, and web-based services?

Policymakers around the world need to ask these questions – and consumers deserve satisfying answers."