Sourced From MediaPost
Published: September 1, 2005

GET YOUR RINGSIDE SEATS.The fight is about to begin. The flurry of announcements coming out of Google and Yahoo! recently show their preparations for the onslaught of MSN Search. And one of the most interesting was Google’s announcement of another issue of 14.6 million shares, to give them an estimated $4 billion cash injection.

First, let’s look at the recent Google announcements. Google Talk, the new IM application, is in beta now, which probably explains the current lack of advertising; don’t expect an ad-free zone for long. A few days before the IM report, Google announced the new version of their desktop search appliance with new features, such as RSS integration and self-updating navigation. To top it off, The New York Times ran an article claiming Google is taking Microsoft’s position as Silicon Valley ‘s favorite villain. According to the article, Google’s huge roster of engineering talent can do almost anything it puts its mind to, basically freezing start-ups in their tracks.

Look closely at the progression and a trend occurs: Get online users to spend more time on Google real estate.

Yahoo! has taken a different approach. The recently inked deal with Verizon pushes Yahoo! into the broadband biz. Again, it’s another attempt to stake a claim with a user base by introducing a more defensible touch point than search is currently.

The problem with search is the ease of switching. Going from Google to Yahoo! or MSN is a quick click. There are no barriers to exit. Google is painfully aware of that fact. When it comes to claiming online real estate, Google is in a vulnerable position.

Yahoo! has had a head start in creating a more complete user experience, as its roots are in the portal space. Ironically, it’s the same thing that almost killed them as a search property a few years ago. At that time, Google’s no-frills approach and clean interface captured the lion’s share of search traffic. Now, as our relationship with search evolves, Yahoo!’s more holistic approach might be a key factor in survival.

Rockefeller’s Choke-Point Strategy

John Rockefeller was the master of identifying and controlling the choke points of an industry. These are the points that allow absolute control over access to a market. With Rockefeller, it was the distribution of the oil that drove all industry. Today, the choke point is access to the desktop. And guess who’s sitting right on top of it? Mr. Gates. In fact, he has a double hold on us. The reason Microsoft destroyed Netscape in the browser war was to control a choke point. Now, as long as Window’s dominates as the operating system (OS) we use, Microsoft controls the ultimate choke point. Nothing can get to us through our computer unless it passes through the OS first.

Currently, Google is building a war chest. They know as long as they’re not in control of the choke point, they’re incredibly vulnerable. The recent activity shows Google desperately trying to add layer upon layer of touch points with its user base. Chat through Google. Network socially through Google. E-mail through Google. Search the desktop through Google. Unfortunately, each layer is built on the Microsoft OS. It’s like building your fort on enemy territory. At some point, the landlord may just kick you out. And I’m not sure $4 billion is enough to change that.

Ready to Rumble?

Google is beginning to build its defenses. Yahoo! is betting on maintaining access through its broadband subscribers. Meanwhile, Microsoft is still lumbering to the starting line.

Back to my original speculation. If you were Google, you had access to $4 billion in cash, and you were taking on Microsoft on their home turf, what would you do?