By Eric Bangeman | Published: February 01, 2008 – 08:42AM CT
Previous talks between the companies have always broken off, and last May, a Microsoft executive was quoted as saying that his company had no need to buy Yahoo. The inability of the two companies to agree on the terms of a merger or acquisition may be why Microsoft decided to go with an unsolicited offer.
Combined, the two companies would account for anywhere from 25 to 35 percent of the search market, depending on which metrics firm is doing the reporting. That’s still a far cry from Google, which has as much as 65 percent of the search market, but a marked improvement over the current situation—especially for Microsoft’s third-place Live Search.
When it comes to advertising, the combined resources of the two companies would make a more formidable competitor for Google. Recent Microsoft acquisitions such as those of aQuantive and AdECN last year have better positioned the software giant in the online ad market; adding Yahoo’s resources into the mix might enable Microsoft to seriously challenge Google’s supremacy.
Yahoo!, which has seen its search market share flatline over the past year, recently announced plans to lay off 1,000 workers and has struggled to turn its status as the Internet’s most popular portal into a cash machine. Earlier this week, the online giant reported a profit for the fourth quarter which surpassed analyst expectations, but its 2008 forecast was below what the Street was hoping for.
Recent changes at Yahoo! might make the company more amenable to a takeover by Microsoft. Former CEO Terry Semel had opposed earlier overtures from Redmond, and successor Jerry Yang had seemed determined to right the ship on his own, but a statement issued this morning by Yahoo! that its board of directors would “evaluate this proposal carefully and promptly” guarantees that the proposal will get serious consideration.
As we pointed out last month, a Microsoft-Yahoo! combination won’t be a panacea for the two companies. Combining two companies that are losing market share doesn’t guarantee that the trend will be reversed. And should the merger go through, and the competitive situation remain the same, it’s going to be even more difficult for Microsoft to play catch-up to Google.