Creating Micro-hoo

This editorial page has an instinctive bias against large corporate combinations, especially when they threaten to snuff out competition.

On Feb. 1, when Microsoft proposed to swallow Yahoo, the prospect of combining the No. 3 and No. 2 companies in Internet search made us uneasy. But when Eric Schmidt, CEO of Google, went to Yahoo and offered an undefined alliance in that market, our uneasiness switched sides. We set up a cheer for Microsoft, and are cheering still.

It is not that we wish the doom of Google. We use its product every day. But Google also has 70 percent of the Internet search market, a share much larger than Yahoo's and Microsoft's put together. We have seen (and felt) how Google vacuums up advertising dollars. It is a good company, but success should not come so easily. Google needs a rival.

Yahoo is not making it. Since the first of the year, its stock dropped sharply; just before the Microsoft offer, it announced a layoff of 1,000 employees.

In the most crucial market for a high-tech company — the market for human talent — Yahoo had fallen far behind. So, in this field, has Microsoft. There is hope that a combined company, empowered and aggressive, could much more easily attract brainpower.

Microsoft's offer is $44.6 billion — the equivalent of eight months' revenue for Microsoft, or one year's output of everyone who lives in Idaho. It is more than six times greater than any of the company's previous acquisitions.

Some analysts worry that Microsoft is offering to pay too much for a target past its prime. On that we have no opinion, but on the question of monopoly, the answer clarifies itself. Microsoft is proposing to create a Pepsi to Google's Coke. And that is a welcome thing.