The Death of Microsoft is prematurely announced again

Saw this in the FT today..........

The scale of Google’s victory over Microsoft in online advertising, sealed by the failure of the Yahoo takeover approach, is hard to exaggerate. By next year, half of the world’s online advertising – set to reach $55bn (£28bn, €36bn) in total – is expected to flow through Google’s systems. Of that, slightly more than two-thirds will come from advertisements that run on Google’s own websites. The rest represents advertising that the internet company, acting as a broker, places on other companies’ sites in return for a small cut of the action.

It is a stunning victory that raises two overriding questions. Will Google be able to use the respite provided by the disarray at Microsoft and Yahoo to carry its dominance of search over into other areas of online – and broader digital – advertising? And should it now be a cause for alarm that one company is in a position to control so much of the lifeblood of the internet?

To some extent, the Microsoft/Yahoo debacle merely confirms something that had already become apparent: the internet search wars ended almost as soon as they began, and Google won. It accounted for around 70 per cent of the estimated $16bn of advertising placed on search engines last year, a share that continues to rise....

(abridged)

...The eventual limits of the fast-growing search market, which accounts for almost half of all online advertising, are still impossible to discern, but it is already a business that stands comparison with the technology industry’s most fabled success stories. On the current trajectory, Google’s revenue – almost all of it coming from search – will probably surpass the income that Microsoft generates from the Windows operating system some time next year.

A similar point also made by Henry Blodget over here - but Blodget goes on to state - to my mind - a flawed assumption that flows through both posts:

- Both products are natural monopolies. Google's share of the search market should continue to approach Microsoft's share of the operating system market (90%+)

- Both products are wildly, fantastically profitable. Microsoft's Windows business has operating margins of 75%-plus. So does Google's search business (once you factor out the billions Google is spending on products that produce zero revenue).

Its not at all clear to me that Google has the same natural monopoly. I can use another search engine with my next search request if it is better than Google.

And the question then becomes, if other search engines start to take market share, can Google keep the same levels of margin and share of advertising?

Unthinkable though it may be, there is quite a groundswell of opinion that Google the Search Engine is not quite what it once was - which is matched by the rise in companies setting up New Search businesses.

And in my opinion Blodget, the FT et al are looking in the wrong direction - looking at Microsoft and Yahoo to build Google killing search engines is akin to looking at IBM and DEC to beat Microsoft - the real competition will come from new areas - unless Google buys them all first of course.

And Microsoft and Yahoo will not collapse overnight - one thing Microsoft and Yahoo could be usefully doing is nurturing new search plays methinks - but they will probably need to create new business groups to do so, avoiding current peanut butter conspiracies.