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Microsoft may be the biggest software company in the world, but would buying Yahoo for nearly $45 billion mean it can effectively combat Google in the online stakes? Let's just say it's a step in the right direction.
Microsoft (MSFT, news, msgs) made its first official bid for Yahoo (YHOO, news, msgs) today, at a price of $31 per share, or $44.6 billion. This represents a whopping 62% premium to the Internet portal's closing price on Jan. 31 and points to a sense of urgency in the fight against leading search player Google (GOOG, news, msgs).
Shares of Yahoo soared today, closing at $28.38, a 48% gain. Microsoft's shares lost 6.6%, to $30.45, and Google's fell 8.6%, to $515.90. Speculation had been rife last year that such a deal would occur, especially with Google's increasing dominance. (Microsoft is the publisher of MSN Money.)
Google has repeatedly trodden on both Microsoft and Yahoo's toes in its attempts to lead the sector.
Google's plan to acquire online advertiser DoubleClick for $3.1 billion sparked antitrust objections from Microsoft last year, which itself acquired ad firm aQuantive in May. Google has also rolled out business applications to rival the market leader, Microsoft Office, even teaming up with business services firm CapGemini in the process.
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A tie-up between Microsoft and Yahoo would be a good start, according to David Mitchell of Ovum. "I think it gives them a much better position than as rival organizations," he told Forbes.com. "Neither one is hitting Google where it hurts. But Google is still a pretty formidable foe in this market."
More from MSN Money and Forbes.com
Data from Nielsen Online show that in December 2007, Google's share of Internet searches in the United States was at 56%, leaving Yahoo in the dust with 18%, and Microsoft's search engines even further behind with 14%. In terms of worldwide audience, Google's viewers increased 18% year over year, to 273.9 million, while Microsoft's rose 9% and Yahoo's just 7%.
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Whether a tie-up between Microsoft and Yahoo could succeed in dislodging Google from the online throne will largely depend on Microsoft's plan of attack. It has the option of expanding its business software reach online via Yahoo, while at the same time it will be looking at better ways to access lucrative internet ad spending.
Microsoft said today that the online advertising market would double to nearly $80 billion by 2010. It added that it expected annual cost savings of $1 billion if its purchase of Yahoo went ahead.
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"I think it is a major shift in the market," said Ovum's Mitchell. "We will see consolidation continue to happen."
This article was reported and written by Lionel Laurent for Forbes.com.
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