May 7, 2007 4:01 AM PDT
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It wasn't the first time reports of discussions between Microsoft and Yahoo surfaced: the Journal reported it a year earlier, also on the eve of Microsoft's Strategic Account Summit, an annual event for online advertisers being held this week. (Yahoo CEO Terry Semel is speaking Wednesday at the Microsoft event in Redmond, Wash.) And it may not be the last given the difficulty the companies are each facing as they attempt to narrow the gap with Google on its $10 billion-a-year search advertising business.
Industry experts noted that Microsoft buying Yahoo might be a stretch, given that one of the biggest obstacles to any acquisition is Microsoft's historical reluctance to make big acquisitions. As a result, the company has lost out on a number of deals in recent years only to see them go to Google. Google's acquisition of DoubleClick is one example of that, its
There's no question Yahoo and Microsoft are losing ground to Google. The search king has 32 percent of the U.S. online advertising revenue, compared with Yahoo's 18.7 percent and MSN's 6.8 percent, according to researcher eMarketer. Google has more than 75 percent of the paid search ad spending in the U.S., compared with Yahoo's 16 percent, the firm said. As far as share of searches in the U.S., Google has more than half to Yahoo's 22 percent share and Microsoft's 10 percent, according to Nielsen/NetRatings.
"Yahoo is at one of the many crossroads in its history right now, trying mightily to compete with Google," Parr said. But "I'm not sure being part of Microsoft is necessarily the right path for Yahoo to be solving its problems."
Meanwhile, Microsoft's efforts to compete with Google on consumer Internet-based services, rebranding MSN services as "Live," for instance, have foundered, and its efforts in search and the keyword advertising market, with its new AdCenter system, have failed to gain traction.
A combined Yahoo and Microsoft would be a powerhouse in display advertising and audience, but Yahoo would see limited benefit, relatively, and Microsoft would most likely struggle dealing with an additional Yahoo brand, said Charlene Li, an analyst at Forrester. "I believe that a merger won't be in the works anytime soon," she wrote in a blog posting. "More logical would be partnership agreements where the strengths of each company are shared."
But a Microsoft-Yahoo combo could backfire, Foundation Capital's Moldow said. "In the end I don't think you can merge assets and create organic growth," he said. "You don't get a pure breed by breeding two mutts, not that I'm calling MSN and Yahoo mutts."CNET News.com's Ina Fried and Dawn Kawamoto contributed to this report.
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