In the collision course to consolidation post, BuyGoogle explained that consolidation of the information industry looked imminent. At the time, there was nothing in the mainstream media about this possibility, but the Wall Street Journal reports today (sub req'd) that it's already happening. I wrote:
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.
Why consolidate? I said that the industry is shaping up for a big fight that will require massive capital expenditure, and the smaller players can't individually keep up with the blistering pace of innovation and investment. They'll also have to consolidate their user bases, and those who don't dance will be relegated to niche positions after this all shakes out.
With Google looking to spend billions in R&D and capex, and Microsoft throwing around similar numbers in response, I guess you could call this the "Google threat." The WSJ article does:
EBay Inc. is talking to both Yahoo Inc. and Microsoft Corp. to determine whether one of them might be a worthy ally against a common threat: Google Inc.eBay is in a tough spot. They need Google because Google has the most powerful ad network -- switching to Yahoo or especially Microsoft could be disastrous for traffic. While Google is essential to eBay's business right now, Google is also seen as the biggest long-term threat. What to do?
After years of working closely with the search giant, eBay last year became alarmed as Google started assaulting its turf in multiple ways. In one case, Google launched a classified-advertising service that competes directly with eBay's online auctions and other listings.
Upon hearing of eBay's talks, Google ... offered an olive branch, in the form of a series of proposals designed to tighten the relationship between the two companies. The superiority of Google's search technology makes it a better place to advertise, say people familiar with eBay's thinking.Today, eBay is in a curious position -- negotiating alliances to wean itself from Google while discussing deeper ties with it. Tech companies have long had to walk such a delicate line between cooperation and competition. But these days, Google's clout has magnified the problem.
EBay has "known for some time that Google poses tremendous opportunity in the short term but is perhaps their biggest threat in the long term," says Jeff Lanctot, general manager of Avenue A/Razorfish, an online-advertising agency.eBay is now talking with Google, Yahoo and Microsoft about a range of options, including advertising partnerships and equity investments.
But the WSJ article, which is titled "Behemoths' Dance," does not mention Amazon anywhere, perhaps because Amazon isn't a behemoth. I still believe that Google has some significant strategic vulnerabilities, and that Amazon may be the biggest beneficiary of the coming consolidation.
There are a lot of dumb ideas out there about what Google should do with its cash hoard. Seems pretty clear to me that Google acquired the cash to give it strategic options since consolidation is coming.
The rest of the WSJ article is excellent, and I may post more on it later.