Microsoft-Yahoo: Could Yahoo Finally Say Yes?

On Friday there was a slow start to the weekend news online until Microsoft posted a news release that started the wire reporters, blog authors, financial analysts, and even normal business folk talking. It seems once again Microsoft wants to buy Yahoo. (Photo Credit: Jennifer Anderson)Microsoft's proposal would allow the Yahoo shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock. The offer represents a sixty-two percent premium above the closing price of Yahoo! common stock on Jan. 31, 2008. Microsoft has made offers to buy Yahoo in the past. In February 2007, Microsoft made another offer to buy out Yahoo and was rejected by the Yahoo Board of Directors. Yahoo told Microsoft at the time, "…now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction." Now, with job cuts and a Q4 earnings report that left many with a bitter taste in their mouth, Yahoo may think twice before sending another rejection notice. Microsoft and Yahoo have both fought all year to gain a solid foothold in the online advertising market. Yahoo, the number two in the advertising game, spent $650 million to acquire Right Media then another $300 million for BlueLithium. Microsoft too spent money in order to compete shelling out $6 billion for aQuantive in August 2007. The one force that has kept them from gaining much ground is a company everyone knows, Google. Google is the king when it comes to online advertising. What makes Google stand out is not something as big as the billions spent by Microsoft or Yahoo to grow their online presence. It is the little things such as a stable and highly used advertising platform, namely AdSense. What Google's AdSense means to the business owner is the ability to place highly targeted ads across a large and impressive network of sites and track the performance of those ads. Yahoo and Microsoft to date have failed to develop a similar platform. In a statement Microsoft said, "The online advertising market is growing at a very fast pace, from over $40 billion in 2007 to nearly $80 billion by 2010. The resulting benefits of scale along with the associated capital costs for advertising platform providers make this a time of industry consolidation and convergence. Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners." In short, they need to come up with something more than their name branding to compete with Google. So is this a done deal then, will we start seeing marketing material from YahooSoft, or Microhoo? Far from it, so far some media companies and business analysts are saying that it could take years for the merger to happen -- if it happens at all. The major business news for this is that some are reporting that neither Microsoft nor Yahoo has addressed their failings and a merger of the two will not solve that problem. The positive is that like the market watchers, Microsoft sees this point too. "The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform. Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search, and new advertising platform capabilities. Many of these breakthroughs are a function of an engineering scale that today neither of our companies has on its own," the offer letter to Yahoo stated. With all the hype over the Microsoft-Yahoo news, Google has remained silent. They are likely busy winning their FCC auction. (Now set for open access if you were unaware) They are expected to remain silent, at least until there is some sort of agreement on the deal. It is unknown what if any sort of competition the merger will offer to Google.