The trajectories of Microsoft, Google, Yahoo, eBay, AOL and Amazon are rapidly converging, and there's not room in the market for all these players. We're going to see some consolidation, which means bidding wars, mergers and ultimately a new internet landscape.

If I'm correct, this could be a treacherous time for Google unless Google makes some preemptive moves. It wasn't long ago that Microsoft and AOL were in serious discussions about a joint venture. While Google won in the end, they were very late to the dance and only won because they were a better strategic fit. Let's hope that Google is ahead of the curve in the coming round of consolidation.

Why Consolidate?

Because each of the players, even Microsoft, needs a bigger user base to be able to negotiate from strength with the network gatekeepers for access to customers. The network gatekeepers like Verizon and AT&T have already consolidated, and now have the market power to tax the content providers unless the providers bulk up and become too big to bully.

It also takes an immense amount of capital expenditure to stay competitive. Google is spending nearly a billion bucks a year on new data centers and facilities, plus another half-billion on R&D. This is a lot for Google, with a $100 billion market cap. It's impossible for Amazon or eBay to keep up with this torrid pace of innovation and investment.

And because each of the players has strategic vulnerabilities that will limit their options and increase their costs if they're not addressed:

• Microsoft - saddled with 5-year-long software release cycles, threatened by network-centric computing and brain drain, distant third in search and online ads; has $60 billion in cash and desktop dominance
  
• Google - very small user base, minimal content, fledgling ecommerce, no social recommendation capability, one-trick pony; #1 in search, #1 in traffic, #1 in innovation, $10 billion in cash and a strong stock
  
• Yahoo - losing search market share, constrained R&D budget limits innovation; highly profitable, massive user base
  
• eBay - slowing growth, marketplace threatened by search; strongest marketplace and payments network
  
• AOL - dying dial-up business, reputation as a walled garden; massive user base and access to Time Warner's content
  
• Amazon - too small to justify the perpetual R&D investment needed to stay competitive; massive user base, #1 in ecommerce, #1 social recommendation technology
  

By acquisition, merger or joint venture, the field of big content providers needs to be narrowed from six to two or three in order to consolidate spending on R&D and capital projects, and to level the playing field with the network gatekeepers. Companies that don't play will be marginalized into niche players, or will try to go it alone without the resources to sustain the pace of innovation needed to remain competitive.

Here's my handicap of the most likely combinations:


Yahoo + eBay - It would have to be a merger of equals, since neither has the capacity to acquire the other. Scot Wingo reasons that "yBay" would be "about the same mass of Google," with competitive products in search, VOIP, shopping and payments.

Google + AOL + Amazon - Google and AOL have already partnered and are integrating content, advertising and IM networks. And while Google shouldn't buy Amazon's distribution centers and inventory, picking up Amazon's technology, patents, content, user base and social recommendation engine would strengthen many of Google's strategic weaknesses.

Microsoft + ??? - Microsoft has the cash, but who would they buy? Microsoft could buy Yahoo outright, and Yahoo's properties and user base would be a nice complement to Microsoft's. Microsoft and Yahoo are already promising to integrate IM networks, but it's hard to imagine Yahoo's open-source applications meshing with Microsoft's platform. (It was hard enough to move Hotmail onto Windows.)

Microsoft could also pay cash for eBay, but it's hard to see the strategic fit -- Microsoft isn't a marketplace, and with the exception of Skype, eBay doesn't solve many of Microsoft's challenges in search, advertising, web applications, or media.

As a Google investor, I'm betting on a combination with Amazon. But if "yBay" happens first, or if Microsoft makes a big move, Google's stock could get hammered.

Where is Apple in all this. They are a force here chipping away    

If Cringely is right, Apple's recent embrace of Windows is a feint that will put OS X in direct competition with Windows on PCs from Dell and HP.

But none of this involves search, marketplaces, or acquiring user bases.

Seems like Apple is more likely to use its $9 billion in cash to pursue the hardware angle rather than trying to crack online services. After all, Apple's always started wtih a cool device - the Mac, the iPod - then extended into software and content (iTunes).

Maybe there's a Tivo in Apple's future?    

Overall prospects of corporate consolidations, and the potential impact on Google, are quite thought provoking.

What does'nt seem to be considered is that the USA represents five percent of the worlds population and that the US will soon be number two (behind China) with respect to internet users. This paradigm should be considered, i.e. the impact of ATT, Verizon, and Comcast could be overstated. It seems to me that Google is looking at the world with "blinders off" which is a good thing. Tis a whole new world which should be the Google growth engine.    

Google is famous for making its own way. I strongly believe that soon it will solve the problem of social recommendation engine.

But will it cooperate with Amazon? I don't think so. There are some promising projects except Amazon that tend to be good social recommendation engimes. For example these guys: www.trustedopinion.com. They call themselves the pioneers in this field and maybe they really are.

So will Google invest money in something fresh or will it buy an brand? I do beliueve in the first variant.