Microsoft and Yahoo: Mergers and Other Options - So What Will Happen?
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The stock market certainly seems to like the idea of a Microsoft buyout of Yahoo. Yahoo's shares gained as much as 19 percent on the Friday the story broke, but lost about half of that gain when the New York Times reported that a joint venture was more likely. Microsoft shares fell very slightly on the news.
From the standpoint of competing in the Internet space, Microsoft needs Yahoo a lot more than Yahoo needs Microsoft. Microsoft's market share has been faltering, while Yahoo has at least been holding its own. Granted, Yahoo's introduction of search advertising platform Panama has generated disappointing results this quarter, but there's a good chance that will be made up for next quarter (if it isn't though, Yahoo's shareholders could easily get restless).
But Yahoo has also made some good purchases and partnerships recently. For example, it bought out the 80 percent stake of online ad exchange operator Right Media that it didn't already own. It also made deals for other sites to carry its ads with 12 publishing companies representing more than 260 newspapers, plus the Comcast web portal. Yahoo has also been working to combine redundant services in order to streamline the company; it recently closed Yahoo Photos in favor of Flickr, for example.
These are all signs that Yahoo may be picking up momentum. The company will need it; Google's purchase of DoubleClick means the search leader is entering Yahoo's graphical-display ad field, where Yahoo has been the leader. But even with the threats on Yahoo's horizon, and the fact that its performance has been lackluster in recent years, Microsoft's online business is in worse shape: that sector of the software giant's revenues grew only 10 percent in the most recent quarter, which is below the industry average; it also posted an operating loss of $200 million.
Still, one has to wonder how long Yahoo thinks it can keep hanging in there. If it allowed Microsoft to buy it out, it may become part of one division rather than remain an entire company focused on the Internet -- but it's hard to resist the kind of resources that Microsoft could presumably bring to bear. It's been said that combining two weak performers rarely yields a strong performer, but in this case the weak performers have complementary strengths that could work well together.
If a merger does happen between Microsoft and Yahoo, though, the cultural differences could doom it before it has a chance to succeed -- and surely neither side would be comfortable admitting the kind of desperation that would drive them to do this. A partnership of some kind is far more likely, and far less threatening to all the egos involved. No wonder Google isn't worried.
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