The sum of Google's fears

In my view Schmidt is piling false fears on top of false choices, and insisting we all dance to his tune. But remember Schmidt didn't found Google, he was the "grown-up" brought in to supervise Sergey, Larry, and the rest of the kids.

Tim Koogle, former CEO of Yahoo
Yesterday I discussed the false choices offered by Google CEO Eric Schmidt.

Today I want to discuss why he offered them.

In any proprietary world markets become a zero-sum game. Consolidation leads to a small number of companies controlling the market, and the customers. Think media, or soft drinks. Think software.

If seen as merely an industry the Internet should evolve in the same way. Internet access is already, basically, a two-man game, in that customers may have two choices or fewer for broadband access.

The fear has always been that search will create customer control, and that when that market consolidates so will your choices on where to go or how to get there.

If Microsoft winds up acquiring Yahoo and becomes what Schmidt calls "Microhoo," that industry will have consolidated and Microsoft will have Google out-gunned.

Microsoft is currently worth about $278 billion, and Google roughly half that. (Yahoo is a relative minnow.)

Big Green has outpaced Google in this bear market (down just 20% against Google's 40% decline) because investors see its license revenue as more reliable than Google's ad dollars.

Thus, Schmidt fears, match Microsoft's financial might to Yahoo's technical expertise and he loses. He becomes Mike Huckabee to Microhoo's John McCain.

The trouble with this thinking is that the Internet is not a single market, thus consolidation doesn't look like politics at all.

If it did Google never would have become what it is. Yahoo dominated the early Internet search market, dominated it so thoroughly it agreed to become a "portal," to "embrace and extend" this dominance in just the way Schmidt fears.

How's that working out for ya', Jerry? Not so good. Turned out the Internet market wasn't as simple as you were told.

It's still not.

The Internet does not represent one market, but dozens. Search may appear to be the base of that market, but we're not talking about a pyramid here, as we were with software. There are far more dimensions to the Internet opportunity.

I doubt Microsoft could even achieve dominance in search, buying Yahoo. Yahoo's search capabilities aren't constrained by capital, or by people. Money is not the reason Google dominates search at all.

In my view Schmidt is piling false fears on top of false choices, and insisting we all dance to his tune. But remember Schmidt didn't found Google, he was the "grown-up" brought in to supervise Sergey, Larry, and the rest of the kids.

Eric Schmidt is not Bill Gates. He's Tim Koogle (above). There is no reason to assume his analysis is right or that his fears are well-founded.

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