‘Yahoo and Microsoft in alliance talks’ – WSJ

Microsoft and Yahoo! have held talks to form an alliance against the search king Google. A recently hired from Ask.com. Berkowitz is known as a deal maker who acquired a number of online properties to build up the Ask.com Empire. He may well be interested in taking a stake in Yahoo! if that’s what it takes to make Microsoft number one in search.

A full takeover would be out of the question. Apart from any issues from anti-trust authorities, Yahoo!’s market capitalisation of some $48 billion would be too much for even Microsoft to swallow. If the deal were to happen, it would more likely be something like the five per cent stake Google invested in AOL.

Although Microsoft failed to secure the AOL deal, a stake in Yahoo! would make a lot more sense. While AOL continues to bleed subscribers and revenue, Yahoo! has a huge audience and is still one of the world’s biggest destinations. And while it is still firmly only number two in search, its market share is still rising while MSN Search is slipping back to just 11 per cent.

Another reason why Microsoft and Yahoo! would be a good marriage is in contextual search tools. While Yahoo! is still struggling with its out-of-date Overture tool set for advertisers, Microsoft is receiving a lot of good comments about its new AdCenter system due to be formally unveiled soon.

However, no matter how good the tools are, advertisers will not be flocking to use them if there is no audience to attract. A combination of Yahoo!’s reach and Microsoft’s AdCenter would be a fearsome challenger to Google’s dominance.

As is the way of these things, both companies are staying tight lipped over the speculation. Both Steve Ballmer and Yahoo!’s co-founder Jerry Yang would have to be convinced of the wisdom of such a deal. But, given the stakes, it cannot be ruled out.

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