[Sosfbay-discuss] Microsoft in Early Talks With Yahoo

[JamBoi]

http://dealbook.blogs.nytimes.com/2007/05/04/microsoft-rekindles-its-pursuit-of-yahoo/?em&ex=1178510400&en=7ed764b70bdd5510&ei=5087%0A

Microsoft in Early Talks With Yahoo
May 4, 2007, 1:00 pm

Microsoft and Yahoo are in talks about a joint venture
or some other form of cooperation, according to people
briefed on the talks. The discussions are part of an
continuing dialogue that the two companies have been
holding for more than a year, but are still in
preliminary stages, these people say.

The New York Post reported Friday that the companies
were in talks that could lead to a Microsoft
acquisition of Yahoo, sending Yahoo’s stock soaring.
But one person briefed on the talks said that other
forms of cooperation short of a merger were most
likely.

Microsoft and Yahoo have previously considered some
kind of combination, including the sale of a stake in
Yahoo’s search business to Microsoft, but failed to
come to terms. The latest conversation could easily
meet the same fate, as integrating cultures,
personalities and technologies at the two firms would
pose serious challenges.

Shares of Yahoo gained almost 10 percent on the news,
closing at $30.98, up $2.80. Microsoft shares fell to
$30.56, down 41 cents.

Microsoft officials said Friday they would not comment
on speculation about a merger between the two
companies. However, a person who had been briefed on
the companies’ ongoing discussions said that a
“creative partnership” was a possibility. One option
that had been discussed was the linking of advertising
networks to generate additional Web traffic, according
to a person briefed on the talks. Another possibility
might be an Internet-only partnership, rather than an
acquisition, this person said.

This person added that there had been no recent
acceleration in the talks.

A Yahoo spokeswoman said the company does not discuss
“rumors and speculation.”

An outright acquisition by Microsoft may encounter
resistance among Yahoo executives who perceive the
company’s single focus on the Internet to be one of
its strengths. They could be wary of becoming part of
Microsoft, a much larger company whose No. 1 business
remains software.

Still, a combination of the two companies’ online
business would present a potentially powerful
counterweight to Google’s dominance of the online
search and advertising market.

In March, Heather Bellini, an analyst with UBS, said
that buying Yahoo would “improve Microsoft’s position
dramatically as well as alter the competitive dynamics
of the search industry.” But Ms. Bellini also
suggested that acquiring Yahoo could create
“potentially unmanageable risks” for Microsoft.
Attempts to integrate Microsoft’s advertising platform
with Yahoo’s could falter; key employees might jump
ship. With all these potential problems, Ms. Bellini
said a partnership, as opposed to a merger, between
Microsoft and Yahoo could be a better plan.

On Friday, however, Benjamin Schachter, also an
analyst with UBS, said he had grown “incrementally
more bullish” on a possible merger between the two
companies, “given there are so few quality Internet
assets available and no shortage of money or strategic
buyers looking at the space.”

Over the past few years, Google has steadily increased
its share of all the searches conducted online. In
contrast, Yahoo’s share has held steady over the past
year, while Microsoft’s has slipped, despite heavy
investments to improve its search technology. As of
March, Google accounted for 54 percent of all online
searches in the United States, more than double
Yahoo’s 22 percent and more than five times
Microsoft’s 10 percent, according to
Nielsen/NetRatings.

Of every $100 dollars spent in online advertising in
2006, Google took in $25, while Yahoo got $18 and
Microsoft received less than $7, according to
eMarketer, a research firm. And Google’s dominance is
expected to grow: the search giant is expected to
capture 32 percent of online ad dollars this year,
eMarketer said.

Both Yahoo and Microsoft were interested in buying
DoubleClick, the online advertising services company,
before Google swooped in with a winning $3.1 billion
bid. The deal, which is expected to strengthen
Google’s online dominance even further, has been
criticized by Microsoft and others, and may
have been a catalyst for the renewal of talks between
it and Yahoo.

Yahoo and Microsoft each own rival Internet portals
that cater to users with an array of services, ranging
from news and entertainment to e-mail and instant
messaging. Yet the two companies have a long history
of
partnerships. Most notably, Yahoo provided search and
advertising services to Microsoft until last year,
when the software giant deployed its own search
service.

Next week, Microsoft is hosting an annual two-day
summit for online advertisers in Seattle at which
Yahoo’s chief executive, Terry Semel, is scheduled to
give the closing keynote speech. Mr. Semel appeared at
the same event two years ago, and his appearance this
year has been scheduled for some weeks.

Despite continued skepticism on Wall Street, Yahoo
executives in recent months have sounded increasingly
confident about the company’s prospects. They have
said repeatedly that a new advertising system, dubbed
Project Panama, was performing well following its
rollout in February and would start delivering
improvements to Yahoo’s bottom line later this year.

The company has also made significant moves to expand
its online advertising business beyond its own vast
array of Web sites. On Monday, it acquired Right
Media, an advertising marketplace used by about 1,000
online publishers to sell advertising space in real
time. It has signed deals to sell graphical ads on
sites such as eBay, Comcast and a consortium of
publishers representing more than 260 newspapers.

Yahoo is no small target; it has a market
capitalization of about $44 billion. A deal for Yahoo
would be the largest ever attempted by Microsoft,
whose market cap is about $290 billion. And the very
different corporate culture at the two companies has
long been cited as a major reason such a deal may not
work.

In an interview with the New Yorker last year, Mr.
Semel, a former film industry executive, swatted down
the idea that Yahoo had considered an outright sale to
Microsoft. Instead, he said that they tossed around
the notion of Microsoft buying a stake in Yahoo’s
search business — a transaction that he compared to an
amputation.

Henry Blodget, the former Internet stock analyst who
runs the Internet Outsider blog, wrote Friday that
combining Microsoft and Yahoo’s search businesses
would be a smart strategic move. But from a corporate
culture standpoint, it would be disatrous, he said.
The Internet has always been a secondary focus at
Microsoft, whose cash cow is the Windows operating
system and its suite of applications. “If Microsoft
buys Yahoo, Microsoft should immediately spin the
Yahoo-MSN business out as a separate company,” Mr.
Blodget wrote. “If it doesn’t, both Yahoo and MSN will
die.”

— Miguel Helft, Andrew Ross Sorkin, John Markoff and
Peter Edmonston contributed reporting

___________________

JamBoi: Jammy, The Sacred Cow Slayer
The Green Parties' #1 Blogger
http://dailyJam.blogspot.com

"To the brave belong all things"
Celt's invading Etrusca reply to nervous Romans around 400BC

"Live humbly, laugh often and love unconditionally" (anon)

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