When 2+3 = 1 or How Microsoft + Yahoo can compete with Google
Report on Microsoft–Yahoo Merger and Google Stock by Steve Baba Ph.D.
PR9.NET February 06, 2008 - USA/Maryland - Fake Steve Jobs writes that the Microsoft-Yahoo merger won't work. "Here's why. It's like taking the two guys who finished second and third in a 100-yard dash and tying their legs together and asking for a rematch, believing that now they'll run faster." Others have expressed the same view differently; add up the number of searches on Microsoft and Yahoo and they total to only about half Google's number of searches.
But this is a fixed-in-time static analysis that depends on the game analogy used. If we replace the 100-yard dash example with a tug-of-war example, the results change. If we tie the two guys who finished second and third together and ask for a rematch in tug-of-war against the guy who finished first, I would bet on two guys being able to out-pull one guy.
But isn't Google like an 800-pound gorilla playing tug-of-war against two 150-pound mortal men? No. Google only looks like an 800-pound gorilla because it has won virtually all past search engines match offs, partly because Google has a head start and partly because Google has a great team.
Google promotes the image that they are smarter than everyone else. Google was even smart enough to invent a new way for their initial public offering. Google's founders came from Stanford University and may think of themselves as smarter, as opposed to luckier, than others from Stanford University whose start-ups failed. Google may also promote the view that they are smarter than anyone else for marketing reasons: search with the smartest people for the smartest results. But is Google really smarter than anyone else?
Even if it's true that Google has the best shot at hiring the top person out of 1,000 applicants, what is the difference between the first, second, third and fourth person out of 1,000? Can Google even be sure they are hiring the very best applicant out of 1,000? Likely there is miniscule difference among the applicants Microsoft, Yahoo or Google can hire.
In our 100-yard dash example, suppose Google was able to hire the three top sprinters, (and we can only tell which sprinters are the best because running has a clear quantifiable result, unlike most occupations) leaving the next three for Yahoo and Microsoft. What is the time difference between the top sprinters? It's only a few hundredths of a second. And the only way one would even notice the miniscule time difference would be if the sprinters were next to each other in the same race.
But search engine design is not an individual sport such as the 100-yard dash. Search engine design is a team sport that takes hundreds of people on the search team to design a search engine. Search engines are more like tug-of-war where the team that can pull or carry you to your goal wins.
The BBC reports: It's clear the search giant (Google) is determined to stop this deal. "We're very nervous about it," a Google insider told me. "Microsoft is so huge it can just hire a couple of thousand engineers at the click of its fingers and put them to work on any problem."
Google is worried, and I would worry if I owned Google stock. Of course nothing is certain and there is a good chance the Microsoft-Yahoo merger will be unsuccessful due to a legal or business challenge. But overall, I would agree with Microsoft's analysis in the letter sent from Steve Ballmer, Microsoft CEO, to Yahoo's board:
"While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers."
Steve Baba, a sometimes teacher, sometimes consultant, has a Ph.D. in economics from the University of Maryland at College Park and can be reached at SteveBabaPdD@aol.com . More information on the economics of the search engine industry is on my website www.gstockreport.com, which was written at the time of Google's initial public offering. Steve Baba is also author of a free ebook on business domain names at www.seemly.com
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Steve Baba, a sometimes teacher, sometimes consultant, has a Ph.D. in economics from the University of Maryland at College Park and can be reached at SteveBabaPdD@aol.com . Steve Baba is also author of a free ebook on business domain names at www.seemly.com
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