Trustbusters Should Lay Off Microsoft and Yahoo

Yahoo and Microsoft are going to join forces – that is, if regulators let them. But will their much-vaunted search partnership succeed? Both firms certainly seem to think so. Antitrust watchdogs should allow them to find out.

Under the terms of the arrangement, Microsoft will concentrate on its new Bing search engine, while Yahoo will administer the lucrative advertising side of the business.

Yahoo! CEO Carol Bartz thinks this division of labor offers “boatloads of value for Yahoo, our users, and the industry.” Steve Ballmer, Microsoft’s chief, foresees “more choice, better value, and more innovation.”

Google, which has in the past labeled Microsoft’s actions as “unfair” and anti-competitive, has responded to the Microsoft-Yahoo by stating that “competition brings about great things for users.” Perhaps the search giant does not view the deal as much of a threat.

Who’s right? Hard to say at this point. Even so, Sen. Herb Kohl, Chairman of the Senate Judiciary Antitrust Committee, will investigate. The Justice Department is also “aware” of the deal and will likely snoop around if recent history is any guide.

Antitrust is the wrong lens through which to look at the question. True, antitrust policies exist to prevent anti-competitive behaviors. But the two main antitrust statutes — the Sherman and Clayton acts – never actually define what those anti-competitive behaviors are. This is a huge problem.

Without the law to guide them, regulators instead have to rely on murky, often contradictory case law – basically judges’ fumbling, case-by-case attempts to define what is permissible and what isn’t. Regulators also have their own personal judgment, which varies enormously from person to person. In short, nobody knows what to expect when it comes to antitrust.

If regulations are to be effective, they must be either clear or silent; antitrust statutes are neither. That alone is reason enough to urge trustbusters to back off the Microsoft-Yahoo partnership, and just let the competitors compete. Consumers should pick the winner, not politicians.

Besides, dominant firms rarely stay that way for long. Market dominance comes and goes at a very fast pace in high-tech industries. Remember how quickly the once-tiny Google displaced the titan AltaVista?

Google is the top dog in search right now, and by a wide margin. Their nearly 80% market share is more than three times Yahoo and Bing’s combined. Preventing Google’s rivals from mounting a more effective challenge means less competition, not more. Yet that is exactly what Justice and Sen. Kohl might decide to do. Throwing another irony into the fire, Google is facing antitrust scrutiny of its own.

Even if the deal is allowed to go through, how much time will Microsoft and Yahoo executives spend focused on the legal and PR implications of a government investigation? Each minute these firms devote to warding off the feds is one less minute they can spend cooking up the next big thing.

Microsoft and Yahoo! have been innovation-challenged as of late. The proposed deal would give the firms scale, which matters in the search business. The more popular your search engine is, the more queries you have to analyze.

Preventing Microsoft and Yahoo! from seizing the one competitive advantage that the firms have yet to exploit – scale – is not going to scare Google.

Maybe the Microhoo! deal will shake up the search market. Maybe it won’t. Either way, government shouldn’t be the deciding factor. The way to ensure a vibrant market is to let the competitors compete.