Microsoft worries regulators will question Yahoo! search deal

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At first blush, it looks as if the Microsoft (MSFT) search partnership with Yahoo! (YHOO) should clear any regulatory hurdles. Certainly the government would look at Google's (GOOG) 65 percent market share of the American market and find no objection to two firms combining efforts to create an entity with less than 30 percent share.

However, Microsoft's top lawyer is not so sure. General counsel Brad Smith told Reuters he is not terribly certain that the deal will make it through the government review process.

Smith may simply be acting coy, knowing that regulators have been pressuring Microsoft monopolies for years. The Yahoo! transaction is a fast way to get Redmond something that it could not have achieved otherwise. It is using its financial muscle to guarantee Yahoo! a stream of revenue that it might not have otherwise. It is a pay-off of sorts, buying market share.

At some point, and that point may be now, regulators in the US and elsewhere will begin to understand that Microsoft is no longer a growth company that has the ability to dominate a large number of markets. The competition has gotten too good at everything from search, to business software, to portable electronic devices.

Even with Microsoft's ability to invest heavily in its new partnership with Yahoo!, Google may not be harmed by the transaction at all. And, advertisers should welcome a real challenge to the largest search engine's hegemony.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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