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Silicon Valley taking Microsoft bid in stride

Times Staff Writers

. -- It was a tenet of faith: If you worked in Silicon Valley, Microsoft Corp. was evil.

During the 1990s, Microsoft used its monopoly in computer operating systems to bully so many Silicon Valley companies that some people called it the Beast from Redmond, a reference to its headquarters in Redmond, Wash. Smaller tech players did everything they could to stay out of its way.

Microsoft’s current main competitor on the Web, Google Inc., still doesn’t look kindly on the software giant. A blog post on Google’s corporate website Sunday said Microsoft’s $44.6-billion bid for Yahoo Inc. raised “troubling questions” about maintaining openness on the Internet and referred to Microsoft’s “inappropriate and illegal” past behavior.

But the broader reaction here to the prospect of Microsoft snapping up a local icon illustrates how attitudes have evolved.

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For the most part, technologists now see Microsoft as tolerable, not pernicious. It might be sad that struggling Yahoo might join a company whose commercial power far exceeds its ability to innovate, many believe, but it’s not the end of the world.

“Most of the valley has moved on from the anti-Microsoft days,” said Talal Shamoon, chief executive of Intertrust Technologies Corp., a digital rights management company that successfully sued Microsoft for patent infringement.

That may be because there’s a new beast in their own backyards: Google.

The Web has supplanted the PC desktop as the center of the computing ecosystem, and Google has capitalized on that shift better than any other company. Although Microsoft’s profitability hasn’t waned, its influence has.

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In recent years, Google has turned Web search into a fast-growing, high-margin gold mine. The company is attracting an ever-bigger share of advertising dollars and Silicon Valley engineering talent to fuel ventures into such burgeoning markets as online video and mobile services.

But Google doesn’t wield its power in the manner that got Microsoft into so much trouble. (Last week a U.S. district judge extended until November 2009 the court oversight of Microsoft stemming from its landmark antitrust settlement with the government.) And Google isn’t willing to consider Microsoft’s transgressions ancient history.

In the statement on Google’s website, General Counsel David Drummond argued that Microsoft’s “hostile bid” should be examined in the context of its previous “inappropriate and illegal” tactics.

He also noted that a combined Microsoft and Yahoo would control two of the world’s most-visited websites, plus an “overwhelming share” of the instant messaging and Web-based e-mail markets.

“Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors’ e-mail, IM and Web-based services?” he wrote.

Microsoft General Counsel Brad Smith fired back Sunday, writing statement that Google held a huge lead over Microsoft and Yahoo combined in the number of searches it performed and pulled in 75% of all search-related advertising revenue. “The combination of Microsoft and Yahoo will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising,” he wrote. “The alternative scenarios only lead to less competition on the Internet.”

Lawmakers and regulators have raised concerns about Google’s dominance in online advertising. However, in December, they blessed its planned acquisition of ad-delivery company DoubleClick Inc., a deal their European counterparts are still considering. That combination, many fear, would extend Google’s industry power and give it more tools to track the habits of Web users.

Microsoft’s inability to keep up with Google in Web services pumped up its interest in Yahoo, leading to an offer 62% above the Web veteran’s value the previous day. Yahoo has been bleeding market share to Google, and a partnership with Microsoft would give it a trove of new resources to help it fight back.

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Yahoo said on its website that deliberations could “take quite a bit of time” as it considers its options, including remaining an independent company.

“People are more sorry that Yahoo is in trouble than that it’s being chomped by Microsoft,” said Paul Saffo, a longtime Silicon Valley forecaster.

That’s a change in attitude from the past, when Microsoft was pilloried for choking companies such as Netscape Communications Corp., which developed the first commercial Web browser.

The tech industry has left the era of browser operating system wars far behind. Many of Microsoft’s old foes now do business with it. Apple Inc. was saved in 1997 by a Microsoft investment that shocked Mac enthusiasts. By 2000, when Netscape co-founder Marc Andreessen’s next company agreed to endorse Windows, the locals were more amused than bewildered.

Netscape, maker of the pioneering browser felled by Internet Explorer, was bought by AOL in 1999 and settled its lawsuit against Microsoft in 2003. Antitrust victim Sun Microsystems Inc., whose co-founder cheerfully derided Windows as a bug-prone “hairball” until the act grew stale, did the same.

Silicon Valley has always cared more about the future than the past, which helped mend the rift. Microsoft also worked hard to make friends. In the late 1990s, it opened a Mountain View campus just three exits up U.S. 101 from Yahoo’s Sunnyvale headquarters and staffed it with Valley insiders.

In October, Microsoft’s courtship of Silicon Valley helped it land an advertising deal with social-networking darling Facebook Inc. Microsoft also made a $240-million equity investment in Facebook.

The rise of Google has triggered a realignment of power, a testament to the belief that few companies can stay on top for long. Microsoft is viewed as an aging dictator, potentially lethal but up against a formidable foe.

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“There is a real awareness that the game has changed and Google is setting the trends,” Intertrust’s Shamoon said. “It’s like one of those cartoons: Our weapons don’t work on it.”

In some corners of Silicon Valley, Microsoft will always be the evil empire, the power-mad monopolist willing to crush its competition.

“Everyone sees Microsoft as the devil incarnate,” said Daniel Sorrentino, an analyst at an Internet advertising company. “There’s concern that this is going to give Microsoft too much control of the Internet.”

Some Web users have pledged to stop using Yahoo as their home page if it accepts Microsoft’s offer. A small group posted anti-Microsoft images on Flickr, Yahoo’s photo-sharing website, and declared it wouldn’t use it anymore -- although others said the same thing when Yahoo bought Flickr in 2005.

“You’ll never see anything good come out of Yahoo again,” said Kyle Setrum, a Silicon Valley software engineer.

Others said Yahoo had already lost its innovative edge.

“Here is a company with so much potential -- one of the pioneers -- that ends up losing its way, wanders in the desert and then gets bought by, of all companies, Microsoft,” said Gary Reback, the Silicon Valley antitrust lawyer who persuaded the Justice Department to go after Microsoft. “There’s a bit of emotion, but it’s mitigated by the circumstance.”

Randy Komisar, a partner at top venture capital firm Kleiner, Perkins, Caufield & Byers, which helped bankroll Sun, Netscape and Google, also shrugged off the old enmity.

“The parochial emotions about the various players seem sophomoric,” he said.

For Microsoft, the biggest concern could be the feelings inside Yahoo, where it would have to motivate the best employees to stay with a company that a decade ago was Silicon Valley’s Public Enemy No. 1.

“Inside its four walls, Yahoo has always defined itself in the same competitive set as start-ups and innovators like Facebook, YouTube and Google,” said a former Yahoo executive who spoke on condition of anonymity.

“So to end up, after all that fighting, as part of Microsoft is the total opposite end of the spectrum. And that would be a bummer.”

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michelle.quinn@latimes.com

joseph.menn@latimes.com

jessica.guynn@latimes.com


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