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December 10, 2006

Blogging Summary

In covering the topic of internet business mergers and acquisitions, we have encountered a broady array of perspectives and opinions Some believe the outlook for the web will be far rosier as a result of the M and A activities of internet superpowers Google, Yahoo!, and Microsoft. Still, others feel that the future of the internet is vested in the freedom of individually-generated material, web 2.0. Some feel that the Big Three can help the growth of web 2.0, while others feel that they will inhibit its expansion. Essentially, this multitude of persuasions regarding the future of the web can be parried down into two camps: those that support large entitiies on the internet, and those that favor smaller-scale, user-generated players.

The advantages of having large-scale entities like Google and Yahoo! run the show are fairly obvious. First, they provide a very central, convenient location for a huge number of resources. Aside from being search engines, companies like these also offer online services such as document editting, maps services, online calendars, and social networking extensions, to name only a few. Many of these resources were not produced in-house by the companies that now offer them. Most of the resources now available through Google and Yahoo! were originally offered by much smaller internet companies that were purchased and rebranded. Does such rebranding hurt or help the original service? It depends. Sometimes the function is integrated into a larger service, such as GoogleDocs or GoogleEarth. In this case, the original service becomes more useful, as it is paired with other services, and their collective utility is greater to the user than their separate values. However, services are occasionally purchased and discontinued. This likely happens for one of two reasons:

  1. The service was purchased to keep it from competing with one offered by the acquiring company
  2. The service became redundant because the acquiring company already offered, or came to offer, a similar service.

Aside from convenience, one can argue that allowing large internet firms to freely engage in growth activities through M and A will make them more competitive with one another, and provide better services for their users. However, as Yahoo! has somewhat proven, this may not be the case. In its frenzy to acquire, Yahoo! purchased quite a few redundant services, that cannabilized one another. Yahoo!'s business strategy became so muddled that one of its Vice Presidents felt compelled to release the notorious Peanut Butter Manifesto - a badly-written memo decrying the firm's lack of direction and sloppiness.

On the flipside of things, one can adopt the viewpoint of a small startup firm. The company likely has one of two motives in its business model:

  1. Independence and customer service as an autonomous unit
  2. The hope of being acquired by a larger firm

The main argument here is: what plan best suits the internet user? It largely true that the hope of being acquired may pull more entrants into the internet world. This was proven during the early dotcom boom with firms looking to be bought up by companies like microsoft. However, such a plan could be detrimental to the quality of sites produced, as startups could merely look to emulate the large firms they hope will target them - this way they are hoping to be bought up as a measure preventing competition. This strategy also poses the threat that true creativity and innovation will be stifled, as companies might be bought and reconfigured before the true potential of their service is realized.

One final consideration in this argument is the legal implications. Microsoft has already had a brush with the monopoly stigma through its software strategy. Will the Justice Department eventually dub behemoths like Google and Yahoo! to be monopolies? Is it possible to actually calculate market share in space as expansive as the internet? These are questions that will likely be answered in years to come, as the internet continues to develop as one of mankind's most useful knowledge-sharing inventions to date. One thing looks sure though: barring any major hurdles, the expansion of the net at large does not look to slow in the near future.

Posted by danepr at December 10, 2006 11:18 AM

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