I took last Friday off, time away from the internet for a long weekend with my family. But I knew what type of craziness would be waiting for me upon my return to work, when I read the business section of the Daily Telegraph on a lazy Saturday afternoon.
I read the Telegraph each day and can personally attest that it has virtually no business coverage of search. Yet there it was. A giant article, complete with photo of Google cofounder Sergey Brin, proclaiming that Microsoft wanted to buy Google.
I knew the only way this story managed to get that type of play in the Telegraph is if its business editors had felt compelled to do so because of the screaming headlines in many other publications. Otherwise, they seem to ignore search with a passion.
Sure enough, a frenzy seemed to have been sparked by a New York Times story that Microsoft had talked with Google about a possible takeover within the past two months.
This is screaming headline news? Please. No one should have been surprised that the companies have talked about a possible purchase. More important, what's lost in all the "what if" about a takeover is the more realistic notion that the two companies might partner in the short term.
Google: Potential Answer To Microsoft's Build-It Problem
Back in February, I wrote that if Microsoft were shopping for search engines, to keep up with the then recent purchases of Inktomi, AltaVista and AllTheWeb, Google was a perfect solution:
A long-shot, but one that can't be dismissed, is that MSN might consider Google. Microsoft certainly has the cash to make an attractive offer, and if you've decided owning technology is important, why not purchase what is still commonly regarded as the best? In addition, you'd pick up Google's widely popular web sites in the US and around the world, while also potentially hurting your chief competitor, AOL.
Of course, Google might not want to be purchased. Even if it did, there would be a real fear that a Microsoft-owned Google might cause Google to shaded with the public fear of dominance that many already have of Microsoft. Google already has enough of a challenge combating this fear without a Microsoft connection.
I revisited the notion again in July, following the Yahoo bid for Overture. While Microsoft had by then said it planned to build its own crawler-based search engine, its challenge was suddenly magnified by the new need consider also creating a paid listings system of its own.
Google is another target. It's been reported that an informal offer has been made by Microsoft to Google at least once before. There's now even more reason for Microsoft to sweeten its offer. By purchasing Google, Microsoft would gain in-house capabilities for both editorial and paid listings. In addition, these would be mature, industrial-strength and proven systems. It would also gain Google's incredibly popular network of web sites.
How about that previous report of an offer? For all the hype about last week's New York Times revelation, no one seems to be mentioning that back in June, Dave Winer's Scripting News blog had the first serious mention of an actual Microsoft bid for Google.
That bid appears to have happened in early 2003, so it is news that Microsoft appears to have since made another attempt, and perhaps a much more serious one. But no one should have been surprised at this. The writing was on the wall. Heck, there was a giant flashing neon arrow saying, "Watch This Space."
Now that Google appears headed down the IPO path, it seems extremely unlikely that such an acquisition would actually happen. Speculation about it almost seems wasteful, but that's not keeping plenty of people from doing so.
Google: Able To Go It Alone
One such example is from The Register, where Andrew Orlowski argues that Google needs Microsoft because it is too dependent on advertising.
Google is indeed an advertising company. That's because the search engine business -- and there is a search engine business -- is largely a new advertising medium. Some people search for information, but many are looking to purchase products and services.
For this reason, when Overture made BusinessWeek's Info Tech 100 list earlier this year, I wrote that both Overture and Google needed to be viewed as ad companies. It's also why I asked Google cofounder Sergey Brin how he'd classify Google back in August. His answer was that Google was still a tech company, but one where that technology is linked to media.
Where Orlowski's article is wrong is the idea that Google doesn't own enough billboards for its advertisements. Google's web site is incredibly popular, a giant billboard that it completely owns. It's not a media agency for its own site -- it IS the media owner.
To dismiss the Google web site is to suggest that a major television network in the United States such as NBC is in trouble because it doesn't own the other networks, as well. As long as Google's own site stays popular, and there's every reason to expect it will, Google is in the enviable position of being a major media owner.
In fact, the idea that Overture is "ahead" of Google is blind to the fact that Overture ultimately had to partner with another media owner to survive. That owner was Yahoo. By being part of Yahoo, Overture now owns some billboards of its own. Before this -- and unlike Google -- it could only rent those owned by others.
Meanwhile, the Google AdSense program by anecdotal accounts has proven to be a knockout punch at coopting billboards owned by others for free. It seems difficult these days to encounter a site that doesn't seem to be carrying Google AdSense links. The Washington Post just ran an article with publishers raving about them. I even now get horrible spam promising to tell me how to make money off Google AdSense.
The AdSense links also provide Google with a nice backup to the fact that, as Orlowski's article says, Google isn't a sticky site. Google doesn't need to be sticky. It earns at its own site by getting you to click on its paid listings, and plenty do. Should you bypass these for unpaid listings, Google still wins. Many of the sites you'll arrive at have Google's paid listings, providing a backup way for Google to earn.
Just do a search for dvd player to see this. A page from How Stuff Works is in the top unpaid results. Head over there, and along the left-hand side of the page that loads, the "Sponsored By" links come from Google. For the record, Google has said it will do nothing to help boost sites that carry its ads. But if you have enough sites with your ads, you don't need to boost them. Some of them will just naturally come up.
Orlowski also suggests that Google needs to start "shouting" about itself as a destination for media buyers. Google already shouts this and has done so for ages. Far from never running ads, Google does substantial spending to make sure its name is in front of advertisers in all types of venues, from magazine, to online, to conferences.
Overall, Microsoft needs Google more than Google needs Microsoft -- hence the fact that Google hasn't sold out to Microsoft. That doesn't mean Microsoft is out of luck, of course. Hardly. Microsoft will continue forward with its original plan of building its own search solution, and you can expect it will be a serious competitor to Google, Yahoo and AOL -- the other major search sites that operate.
Google: Why IPO?
If Google is strong enough to say no to Microsoft, then why does it need to go public? The best argument I've seen is that Google is almost compelled to because the number of employees it has will force it to make quarterly public filings.
Barron's Online reported this before the rumored IPO plans emerged. I also remembered this as the reason Microsoft went public, and indeed, it was. In fact, reading a past account I found about Microsoft's Bill Gates thinking going public would be a "pain" sounds eerily like the statements Google's founders have made this year.
The other good argument is that Google's major investment firms may be putting pressure on the company to go public in order to cash in. That, combined with the need to do public filings anyway, makes it compelling to move forward with an offering.
Nothing Left To Buy? Not At All!
An argument I've seen others bandy about is that Google needs cash, either to buy things or to fight Yahoo and Microsoft. An example of this is from the Guardian, where Jack Schofield explores whether Google's IPO may be coming too late.
The contention is that Google needs money to build itself out as a portal to truly take on features that Yahoo and Microsoft have, and that perhaps all the best companies have been bought up.
This doesn't fly with me. Is Google sorry it didn't do a nearly $4 billion stock swap to acquire personal homepage service GeoCities, as Yahoo did back in 1999? I wouldn't think so. Instead, for what's believed to be a relatively tiny sum, Google bought Blogger.
Blogger lets people build what's for many the successor to personal home pages: blogs. So for far less than Yahoo, Google gained a better system. In fact, Google's competitors Yahoo and Microsoft will now likely have to pay more if they want to acquire blogging companies, since Google's now attached a value to them.
To put it another way, Yahoo bought a 486 computer back when computer prices were in the thousands of dollars. Google's got a Pentium IV, at a time when computer prices are just in the hundreds. The notion it has missed out neglects the fact that web services themselves are constantly advancing.
What Might Google Buy?
Certainly an IPO will give Google more cash, though the company seems to have managed a number of acquisitions this year without being public. It even apparently had $30 million to offer Friendster, the online dating site, but found its advances rejected.
No doubt Google will continue to buy where it makes sense. What might it get? Schofield's article suggests email might be an area Google could expand into, and that certainly makes sense.
Google used to say it was focused on search, but these days it's about "organizing the web's information." Email is information. And with email spam a growing problem, I could see Google seeking a spam-filtering company such as Brightmail or SpamCop (which I use and highly recommend). A plus to such a move is that this type of service would generate subscription-based revenue that Google currently lacks.
Perhaps Google might seek a company that lets people sell products online, which would then feed into an actual Google shopping or auction area.
All this is speculation. The reality is that no one can give you a list of everything Google "must have," nor is there any reason to think that just because an IPO will give the company plenty of cash, it necessarily will feel it must buy, buy, buy.
We did see this type of thinking during the portal wars of the late 90s. If anything, it should have taught that just buying what your competitors have doesn't guarantee you're making the right move. Just ask Go/Infoseek, Excite and Lycos, all of which have but a shade of the traffic they once held, despite playing the acquisition game.
Search Investment Made Early
Going back to the Guardian article, it argues that Google missed out by not getting the "hot" technology and "big" web sites of AllTheWeb and AltaVista, neither of which was big in the sense of popular usage. Instead, "wide awake" Yahoo got them, as well as Inktomi and Overture.
Wide awake Yahoo? Yahoo bought these companies because it is playing catch-up with Google. Google owns everything that these companies had to offer. That's why it didn't need them. That's also why it didn't need to spend $2 billion on acquisitions, in terms of cash-and-stock deals, to get them in the way Yahoo has.
Here's another metaphor. Some see the amount Yahoo has spent on search over the past year and think Google needs the same amount in cash. They fail to understand that Google is already a home owner, and it bought its house when prices were cheap.
In contrast, Yahoo was a renter until the end of last year. By the time it bought, the price of buying a crawler-based search engine had jumped significantly. Ask Jeeves spent only $4.1 million in cash and stock on Teoma in 2001. LookSmart spent $9.5 million in a stock deal for WiseNut in 2002. When Yahoo bought Inktomi, it paid $235 million. That's 57 Teomas or 25 WiseNuts!
Who Will Win? Probably Everyone
The Guardian article raises the commonly-asked issue of "who's going to win" in the search race that continues to heat up. Don't expect this to be the service that uses "personalization" to prevent switching, as the article suggests. Yahoo and MSN already have personalization. That's not kept people from going to Google when they want to search.
Instead, you're not likely to see any clear winners. Why? Think television networks. In the US, there are four major networks that capture viewers. None of them are going to collapse overnight, though any one of them will gain or lose users depending on its programming.
Search is programming. As long as Google's programming stays substantially good, users are going to keep tuning in out of habit. Potentially, it is "easy" to switch from Google. But ask any smoker how easy it is to give up cigarettes.
You don't break a habit unless you've got a good reason. For searchers with the Google habit, they'll only switch if Google becomes noticeably bad at the same time its competitors are substantially better. What about arguments some make claiming Google's quality has slipped? Those making these claims often fail to try the same searches at Google's competitors. I always do, and I often find Google's competitors are no better.
Realistically, all four major services -- Google, Yahoo, MSN and AOL -- will likely maintain some parity of quality that doesn't prompt a massive outflow of users.
Google & Microsoft Could Partner Short Term
The Guardian article suggests that Google woke the "sleeping giant" of Microsoft. Actually, it was Yahoo's noisy buying spree that did this. In addition, the Yahoo moves have given Google a serious "in" with Microsoft for the first time.
Google has pitched Microsoft on using its search services for well over a year. It never had a real chance because Microsoft perceived Google as a competitor, while the companies it had historically partnered with -- Inktomi, Overture and LookSmart -- were all "neutral" providers not trying to attract their own visitors.
Today, MSN has ruled out staying with LookSmart past January. That leaves it depending on Inktomi and Overture, both of which have lost their former neutrality since they are now owned by MSN-competitor Yahoo. In the long-term, MSN will solve this problem by building its own in-house services. In the short term, the relationship means cash for Yahoo's coffers.
The alternative, of course, is to partner with Google in the short term. That brings us all the way back to the recent New York Times article. A takeover possibility was only one of the options discussed.
Google certainly had to hear the pitch. In fact, the company has said on several occasions that it would entertain any serious offers, as Google cofounder Sergey Brin said when I asked him specifically about the possibility of a sale to Microsoft in August.
But while Google got Microsoft's pitch, there's no doubt Microsoft heard Google's. "Use us," Google would argue, "because we are far less competitive with you than Yahoo."
For the time being, both sides seem to be sticking with the status quo. But don't be surprised if we hear more about Microsoft and Google talking. It's unlikely to be about a takeover, but it certainly could be about working together.