This Christmas, Google executive chairman Eric Schmidt should really consider buying outgoing Microsoft chief executive Steve Ballmer a big Christmas present. Perhaps a nice hamper or a turkey. Really, it’s the least he can do.
To find out why, we first need to go back to the mid-1990s.
Back in the 1990s
Back in the ‘90s, the “IBM Compatible” desktop PC was the dominant computing paradigm. Microsoft was the 800-pound gorilla of the industry, with Windows and Office reaching near-monopoly levels of market share.
Unfortunately for would-be competitors (such as Commodore/Amiga, Acorn/Archimides, BeOS, Atari, Sun and NeXT), there was a catch-22. They never gained market traction with consumers because they didn’t have the software, and lacked the software because they didn’t have enough consumers.
Microsoft sought to protect its near-monopoly by trying to extend it into other areas by competing in almost every computer-related category it could, tying them together with Windows.
There was Microsoft’s Encarta competing against the Britannica CD-ROM, Windows CE against the Palm Pilot, Windows Mobile against Symbian, Slate against Salon, MSN against Yahoo!, MSN Search against Alta Vista, IIS against Apache, Hotmail against MailCity, and MSN Messenger against ICQ.
Of course, competition regulators of the day generally didn’t take kindly to monopolies – especially those leveraging their success in one business area into another.
Thankfully for Microsoft, when the inevitable antitrust trials and regulatory hurdles came, Microsoft could reliably point to the Apple Macintosh and say the PC industry was still competitive.
Now, if Apple ever made the decision to shut its Mac division down, Microsoft would have been left with an absolute monopoly.
This, most likely, would have been quickly followed by an antitrust lawsuit that would have seen it broken up into several companies. At the very least, competition watchdogs and regulators would have made any takeovers by Microsoft incredibly difficult.
In a strange way, you could argue the Apple Mac saved Microsoft.
Back to 2013
Now, let’s fast forward to 2013. The web and mobile are increasingly the dominant computing paradigms. Google is emerging as the 800-pound gorilla of the industry, with its search engine (and, increasingly, Android in smartphones) reaching near-monopoly levels of market share.
Unfortunately for would-be competitors (which is limited to Microsoft Bing and a couple of really small players, such as Yandex), search is an expensive business. It takes a lot of server power and storage capacity to map and store the entire web, let alone having such a massive database accessed billions of times per second.
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Is this starting to sound familiar?
Meanwhile, Microsoft is still trying to compete in almost every computer-related category it can, tying them together with Windows.
This includes Microsoft’s Bing search engine, which costs the company an estimated $US2 billion per year.
Of course, competition regulators still don’t take kindly to monopolies – especially those leveraging their success in one business area into another.
Thankfully for Google, when the inevitable antitrust trials and regulatory hurdles come, it can reliably point to Bing and say the search industry is competitive.
Now, if Microsoft ever made the decision to shut its Bing division down, Google will be left with an absolute monopoly.
This, most likely, would be quickly followed by an anti-trust lawsuit that would see it broken up into several companies. At the very least, competition watchdogs and regulators would make any further takeovers by Google incredibly difficult.
In a strange way, you can argue Bing is saving Google.
Yes, it’s a real turkey
As counter-intuitive as it might at first sound, the biggest beneficiary of Microsoft’s $US2 billion per year investment in Bing is Google.
The search giant benefits from having a “competitive” search market every time it needs regulatory approval to buy another business. It also benefits when regulators question its market power in search.
And, as a result of its freer hand, it is more able to compete in Microsoft’s core markets, including productivity software and operating systems.
It’s not 1995 anymore. In some areas, Microsoft’s attempts to compete in non-core areas is actually helping, rather than harming, its competitors. Search is a great example of this.
And the least Schmidt could do in return this festive season is to present Ballmer with a juicy Christmas turkey. “Thanks a billion for Bing”, the attached card would say.