Yahoo-Microsoft merger talk resurfaces

Yahoo-Microsoft merger talk resurfaces

By Eric Bangeman | Published: May 04, 2007 – 11:06AM CT

When “people familiar with the situation” start talking, the financial world takes note. Those people have apparently told Reuters and the Wall Street Journal (subscription) that Microsoft and Yahoo are in discussions over the possibility of a merger, an outright acquisition, or some sort of joint venture that would enable them to compete more effectively with Google.

If this sounds familiar, it should. The companies held similar discussions around this time last year, which ultimately amounted to nothing. Microsoft was game, but Yahoo was not—Yahoo CEO Terry Semel said at the time that “I will not sell a piece of search—it is like selling your right arm while keeping your left. It does not make any sense.”

Yet here we are a year later, and the conversations have apparently rekindled. If you’re wondering what’s changed, that’s the wrong question to ask. A better one would be “what hasn’t changed?” and the answer is simple: Google’s utter dominance of the search and advertising landscape.

Aside from a modest, Vista-related bump in March for Windows Live, Microsoft and Yahoo have seen their search market share fall while watching Google’s continue to climb. Google also continues to flex its advertising muscles, kicking sand in the faces of its competitors with the recent acquisition of DoubleClick. Adding insult to injury, DoubleClick may have turned down a more lucrative offer from Microsoft before being purchased by Google.

From a strategic standpoint, then, some sort of Microsoft-Yahoo alliance makes sense. An outright acquisition of Yahoo by Microsoft is almost certainly out of the question, however. Yahoo has a market cap of $44.98 billion and Microsoft has never come remotely close to spending that much on an acquisition. Some sort of stock-cash combination is plausible, but also unlikely.

A more likely scenario is a joint venture, or Microsoft possibly spinning off its MSN/Windows Live group into Yahoo in exchange for a chunk of Yahoo stock. Both scenarios would require Microsoft to relinquish some control over its online branding, which it may be resistant to doing, but that’s arguably more attractive than coming in a distant third place when it comes to search.

A Microsoft-Yahoo joint venture or other partnership would allow the companies to pool their online advertising expertise as well as their traffic, and would better position them to compete against Google. It wouldn’t be enough to overtake Google’s search figures: going by comScore’s March search rankings, Yahoo and Microsoft combined would take 38.4 percent of the search market compared with 48.3 percent for Google.

The same is true for advertising. According to Nielsen/NetRatings, the combined advertising reach of Microsoft and Yahoo would be less than a quarter of Google’s.

Sponsored link ad impressions by ad platform—March 2007
Data source: Nielsen/NetRatings AdRelevance

Ad platform Sponsored link impressions (Millions)
Google Search Network 88,327
Yahoo! Search Network 18,313
MSN Search (on property only) 1,906
Yahoo + MSN 20,219

There are some obstacles to a Yahoo-Microsoft combo, however. The Journal believes that Yahoo’s upper management might block a deal, saying that Yahoo cofounder Jerry Yang “has a reputation for disliking Microsoft and avoids using Microsoft products.” But with the two companies continuing lag behind Google, it may be time to put their differences behind them and hammer out an agreement.

Discuss Print

Comments RSS

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: