The Economist’s coverage of Microsoft’s bid for Yahoo has apparently been written by someone who thinks that Yahoo is primarily a search engine. It has been written in complete ignorance of both the competition concerns and the major difficulties of integrating the businesses.

Simply looking at the main Yahoo front page is enough to show that search is only one of Yahoo’s services. Taking a look at Alexa it appears that that only 14% of visitors to Yahoo use search, compared to 46% using Yahoo Mail, almost the reverse of Google. Google is a search engine, Yahoo is a portal. Although Alexa numbers are not particularly accurate, they are roughly right for large sites like Yahoo.

What else might concern a regulator, That The Economist has failed to notice. A lot:

• the dominant position in webmail that the combination of Yahoo Mail with Hotmail (bought by Microsoft many years ago) would have,
• the very strong position in instant messaging that the combined business would have,
• the size of the combined portal, Yahoo is already the largest portal and the busiest site on the net,
• the potential to use the portal and instant messaging services to push Internet Explorer and Windows by locking out users of competitor’s products (Something Microsoft has already tried with Hotmail),
• the potential to use Windows and Internet Explorer to push the combined portal,
• a strong position in photo sharing (Flickr is owned by Yahoo), in combination with Microsoft’s dominant position in desktop software,
• a strong position in social bookmarking (Yahoo owns Delicious),
• the elimination of Zimbra, Yahoo’s emerging (and very promising) competitor to Microsoft’s dominant Exchange email and collaboration corporate server,
• the end to Yahoo’s support and funding of technologies that compete with Microsoft including FreeBSD, PHP and Open ID.

That is just what I could think of off the top of my head. Given both Microsoft’s and Yahoo’s wide range of services there are probably many more.

Not content with simply missing most of the businesses involved, the article goes on to make some strange assertions, including this gem:

the search-engine market surely has more monopoly power nowadays than the desktop market

So Google’s 70% share of search is a more significant sign of monopoly power than Microsoft’s approximately 90% share of desktop operating systems! What about lock in of existing customers? Presumably switching search engines (for example typing “search.yahoo.com” into a web browser) is more effort than installing a new operating system on a computer. What network effects exist for search engines comparable with the strong ones that exist for operating systems? Google itself has already demonstrated that a new entrant with a better product can rapidly displace the market leader in search (which was previously Alta Vista).

Another issue is ignored by this statement:

The only grounds on which a trustbuster could plausibly oppose Microsoft buying Yahoo!—that it is possible to exercise monopoly power in online search and advertising—surely apply even more strongly to Google.

This ignores the possibility that the regulators might object to the market power that the combination would have in instant messaging, the elimination of competition etc.

In addition, the law, in both the EU and the US, makes a distinction between gaining market share through organic growth, and through acquisition. Google has done little the regulators could object to: simply convinced customers it has a better product. It has made no major acquisitions in search: its big acquisitions have been outside the business in which it is dominant. Google also, unlike Microsoft, has no track record of abusing its (alleged) monopoly.

As with any large takeover, the cost and difficulty of integrating operations is a key issue. The only comment The Economist can come up with on this is that there will be a “culture clash”. They have overlooked the little problem of combining different technologies.

The problem is that Yahoo runs almost entirely on open source software. Not only does this help Microsoft’s competition, but Microsoft’s management has a deep, and often expressed, hatred of open source, for example, describing it as a cancer.

Migrating all of Yahoo’s sites from their current platform (mostly Free BSD, Apache and PHP) to a Microsoft platform will be a huge amount of work. Microsoft found it hard enough to move Hotmail to Windows, how will they cope with a similar transition for the much larger Yahoo?

To summarise the wonderful achievement of The Economist, the writer of the article:

1. Does not know about Yahoo’s businesses outside search and advertising.
2. Does not understand the dynamics of market share in search.
3. Has a flawed understanding of the legal position.
4. Does not realise that there are serious technical obstacles to combining the companies’ operations.

Zero out of four. Must do better.