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While Redmond, Washington-based Microsoft is awaiting word from pioneering Internet company Yahoo on whether it will accept Friday's massive $44.6 billion purchase offer, regulators and online search giant Google are preparing for a variety of possible outcomes. Microsoft's Latest Attempt to Acquire Yahoo Microsoft has sought to merge with Yahoo for more than a year, with talks between the companies held in February 2007 ending when board members at Yahoo made it known that the company was not for sale. Those talks were to have seen both firms come up with joint plans aimed at holding back the rise of their rival Google, however Microsoft appears to view Yahoo as not having done enough in that regard during the intervening time. The world's largest software maker has made moves to better compete against Google in the online advertising market, most notably through its $6 billion acquisition of Web advertising group aQuantive Inc. in 2007. Microsoft has been criticized over the years by detractors as having far more commercial power than Internet innovation, and for resorting to buying services it has not been able to build. Yahoo in turn has designed both a display advertising plan known as its Advertiser Publisher Exchange, and a search advertising system, called Panama. Yahoo is expected to launch "Apex" during the second half of 2008. During an earnings conference call in October 2007 Yahoo chief executive and co-founder Jerry Yang told analysts that online advertising of both types would be important to the firms future. "We believe having a principal position in both search and display advertising is critical to creating [...] long-term shareholder value," Yang said. Yang has said in the past that he would be opposed to a Yahoo sale to Microsoft. Antitrust Concerns In a United States district judge ruling that may make its claims of anticompetitive practices against Google appear disingenuous, Microsoft last week received a two year extension to the court oversight it has been  operating under, arising from the landmark U.S. government antitrust settlement. While Microsoft's offer, complete with a 62 percent premium on Yahoo's stock price before the announcement, may seem large, some analysts see the value it gives Yahoo as being too low. As early as October 26, 2007 Yahoo's stock price was higher, at $33.63 per share, than the $31 Microsoft has offered with its Friday bid. Some see Yahoo's assets worth in excess of $45 a share, including Sanford C. Bernstein analyst Jeffrey Lindsay, according to a recent BBC article. Microsoft Awaits Yahoo Decision on $44.6 Billion Bid In a market in which each person in the U.S. spends some 31 percent of their media viewing time on the Web, according to analysts, but where only a small amount on online advertising spending - 7 percent - is spent online, companies such as Microsoft and Yahoo are betting that these figures will eventually move more towards convergence. Google has an even more substantial search share lead in European markets than the U.S., with recent figures from Web traffic analysis firm comScore showing the firm with a whopping 80-90 percent among certain markets in Europe. While analysts see a combined Microsoft and Yahoo being in a better position to compete, many see it as an especially difficult undertaking in Europe. Some companies in Europe are content to do all of their online advertising with Google. "Whether this deal happens or not, it'll be incredibly difficult for anyone to compete with Google for European search share," Jupiter Research analyst Nate Elliott told the BBC. "A combination of MSN and Yahoo would definitely be better-positioned to compete with Google for paid search revenues than each company is now," Elliott added. If the proposed acquisition should take place it is expected to go down in history as not only the largest ever Internet takeover, but also as one of the most significant. "If it goes ahead, the Microsoft and Yahoo merger would be one of the major events in the history of the internet," Nielson Online analyst Alex Burmaster told the BBC. Internet Community Reaction The prospect of two already large Internet firms merging and narrowing the field may not be appealing to some recent college graduates looking to work at the type of innovative Internet companies where they can have a large impact. An unnamed job seeker told the New York Times that a Microsoft acquisition of Yahoo "definitely decreases my interest in either company." Yahoo has struggled to maintain its image as a trend-setting Web innovator. "People look at Yahoo and think it might have already seen its best days," one California recruiter told the Times. The merger proposal may also trigger an exodus of workers from Yahoo, as they look to avoid working for a corporate management team that could be located nearly 900 miles away in Redmond, or simply don't like the prospect of working for a firm the size of a combined Microsoft and Yahoo. While some Yahoo workers may already be looking into job possibilities elsewhere, others are excited. "I heard the news Friday and thought, ‘I’m staying,' " one anonymous Yahoo employee told the Times. "We really want to beat Google. And if Microsoft is equally determined to beat Google, then sign me up," they added. Yahoo has also struggled in recent years to keep key personnel, however the group of several hundred people charged with working on the firm's search technology appears to have remained mostly unchanged. One Yahoo service noted for its especially dedicated users is Flickr, which Yahoo purchased in 2005. Microsoft's proposal to buy Yahoo has been met with apprehension among some hard-core Flickr users, who fear a takeover could change some of the core features the service has had since its inception. Overlapping Services Only One Hurdle If Microsoft successfully acquires Yahoo, it will need to face the problem of how to deal with a number of overlapping services that are offered by each firm independently at present. A writer for Reuters dubbed a combination of the firms, with two of each type of service in many cases, a "Noah’s Ark of a Web company," and the timely problem of combining these services could handicap Microsoft while Google forges on. Another issue that could surface should the merger take place is one of how best to integrate two very different development frameworks, with Microsoft understandably using its own products while Yahoo tends to favor non-Microsoft software including the Unix and Linux operating systems. Microsoft's proposal to buy Yahoo could have an affect on successful Internet start-up companies as well, which would face the prospect of having one less large firm available that might eventually be able to buy them out. "It’s not great for competition if there are only two acquisition targets instead of three," said video hosting and advertising company Ooyala's chief executive and former Google employee Bismarck Lepe in a recent Times article. Integrating Yahoo's 14,000 employees into Microsoft's workforce of 80,000 is expected to be another hurdle for Microsoft should it acquire Yahoo. Related Links:
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10:28 pm on Feb. 5, 2008 (utc 0)