Online advertising is crucial to Microsoft's burgeoning "software-plus-services" initiative it's the fuel for all the free services the company is bringing to market.
It is no surprise then, that the approval earlier this month of the merger of Google and DoubleClick by a 4 to 1 vote of the U.S. Federal Trade Commission (FTC) was bad news for Microsoft -- not that it didn't try to derail the deal.
A blogger for the New York Times last week obtained three confidential Microsoft documents that the software behemoth had provided to the FTC this fall. They were prepared in support of Microsoft's arguments that the merger would harm competitors' ability to compete in emerging online advertising marketplaces.
Microsoft officials independently confirmed the documents are bona fide.
"We believe this merger raises serious questions about the future of competition in the online advertising market, as well as about consumer privacy and copyright protection," Jack Evans, a Microsoft spokesperson, said in an e-mail to InternetNews.com.
The leaked documents go into more detail.
"By combining the dominant network for sales of online advertising with the dominant provider of ad-serving tools (which are the advertiser and publisher 'portals' to the online advertising market), Google will obtain dominant control over the 'pipeline' for online advertising," the introduction to the main document, titled "Summary of Antitrust Analysis," states.
The company's high-level analysis?
"The transaction will put Google in a position to extract an increasing portion of the money flowing between advertisers and publishers through the pipeline. It will also enable Google to use its access to, and control over, a predominant share of publisher 'inventory' (the ad space on a Web page available to be seen by users) and valuable user information to impair its rivals ability to compete to sell and serve ads," the document continues.
The other two documents include a PowerPoint slide deck illustrating the state of the online advertising business today and what Microsoft purports it would look like if the merger goes through. It also includes a document containing proposed alternative remedies that the FTC could have taken.
Obviously, the documents didn't carry the weight with the FTC that Microsoft's legal and public relations teams had hoped. However, all is not lost not yet, at any rate.
That's because the European Commission (EC) is holding a meeting regarding the proposed merger on January 21. The EC announced last month that it would take a deeper look at the proposed $3.1 billion deal, after a preliminary evaluation found that the combination would raise competition concerns.
While Microsoft officials would not confirm that the same or similar documents will be or have been already filed with the EC, it seems apparent that will be the case, with some tweaking to reflect differences in the EC's laws and markets.
One of the lingering questions is whether the EC is still so ticked at Microsoft for having dragged its heels for three years over the 2004 antitrust ruling against Microsoft that the company's arguments won't hold much weight.