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Google to bail out Yahoo?

Latest update : 2008-04-11

As Yahoo turns toward longtime rival Google in a last attempt to ward off Microsoft's takeover, analysts claim that the whole affair is, in fact, strengthening Google's monopoly over the search engine market.

While the US software giant says Google's dominance online is the reason it is eager to buy Yahoo, the California firm's efforts to stave off Microsoft leave Google free to concentrate on strengthening its grip on the market.
  
"Our big take-away now is that as the situation gets more muddled with more participants and more uncertainty, it seems to solidify Google's standing in the industry," Cantor Fitzgerald analyst Derek Brown told AFP.
  
A series of Yahoo maneuvers aimed at rebuffing Microsoft were announced or leaked this week, while the software giant may also be upping its game.
  
On Thursday a report surfaced that Microsoft is exploring an alliance with News Corporation owned by Rupert Murdoch.
  
Terms of a possible deal include News Corp. contributing cash to help Microsoft buy Yahoo, and then adding its popular social networking website MySpace to the resulting Internet entity.
  
Such an alliance would be an abrupt change of sides for News Corp., which was among possible "white knights" that Yahoo reached out to for salvation after Microsoft came on strong with a 44.6-billion-dollar offer February 1.
  
News Corp. also has a long-term deal with Google to host online advertising at MySpace.
  
Yahoo, meanwhile, is apparently seeking help from longtime rival Google, whose dominance in Internet advertising is among the reasons Yahoo's share of the market have been eroding.
  
Yahoo announced Wednesday it will launch a limited, two-week test of Google's AdSense for Search service, which essentially means it will be checking how much better Google is at generating cash from online advertising.
  
Analysts agree that a significant alliance between Google and Yahoo would be squashed by US regulators because the companies combined would control some 90 percent of the online search ad market.
  
"The company that would clearly want to come to the rescue is Google but they know the regulators would just go nuclear if they did that," Gartner analyst Van Baker said.
  
Unofficial word has spread that Yahoo is also nearing a deal with Time Warner's America Online to combine the two struggling companies' Internet operations and thwart Microsoft's takeover effort.
  
Time Warner would reportedly merge AOL into Yahoo and pay for a 20 percent ownership of the combined company.
  
Yahoo would reportedly use the cash to buy back shares from some of the very stockholders Microsoft is threatening to woo in an effort to have Yahoo's board of directors ousted and replaced with people amenable to the takeover.
  
Silicon Valley analyst Rob Enderle agrees that Google benefits while its two closest rivals duel but says that Google might have reason to worry.
  
Microsoft has a 1.6 percent stake in fast-growing social networking website Facebook. A tie-up with MySpace, while a bit awkward, would give Microsoft footholds in two top social networking properties.
  
If Yahoo makes an alliance with AOL and then is bought by Microsoft, the combined resources span a formidable swath of hot websites.
  
"Microsoft and Yahoo might not be a threat to Google, but you throw Murdoch in the mix and that is a credible threat," Enderle said. "The chance Microsoft could pull it off could be what keeps Google up at night. It's scary."
  
Microsoft is betting that by combining with Yahoo, it can gain ground on Google.
  
"I think Yahoo genuinely doesn't want to merge with Microsoft," Baker said.
  
"They think it will be bad for the employees and bad for the industry, and I don't disagree with that."
  
Yahoo on Monday rejected a three-week deadline from Microsoft to accept the takeover but said it is open to a sweetened bid from the software giant or another bidder.
  
"I think this is inevitable," Baker said of a Microsoft takeover of Yahoo.
  
"I'm just very concerned Microsoft will screw it up and we will end up with Google controlling 90 percent of the ad business anyway and that Yahoo culture is going to evaporate."

Date created : 2008-04-11

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