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Microsoft to invest more in Web search

Microsoft Corp chairman Bill Gates said on Monday that his company plans to invest heavily in Web search to compete against Google, even if it fails to acquire Internet search company Yahoo Inc.

Gates, who called Microsoft's offer for Yahoo "very fair," said Google is the only company with "critical mass" in Web search.

"We can afford to make big investments in the engineering and marketing that needs to get done. We will do that with or without Yahoo," said Gates in an interview with Reuters. "But we also see that we'd get there faster if the great engineering work that Yahoo has done and the great engineers there were part of the common effort."

Microsoft, the world's biggest software maker, may succeed in fighting off rival suitors for Yahoo because they can't offer as much to Yahoo's shareholders.

Yahoo, seeking alternatives to Microsoft's US$44.6 billion bid, is in talks with News Corp, a person familiar with the discussions said last week. The Sunday Telegraph reported on Sunday that Time Warner Inc's AOL is in talks with Yahoo. A partnership won't help regain the lead in search from Google Inc, Canaccord Adams's Colin Gillis said in New York.

"All this talk about Yahoo combining with AOL or News Corp is just noise," said Gillis, who advises investors buy Yahoo shares. "You're not curing any weaknesses. Shareholders would have a hard time loving a combination like that."

Microsoft would more than double its share of Internet searches in buying Yahoo, and save as much as US$1 billion a year by reducing overlap in their operations. Yahoo chief executive Officer Jerry Yang (楊致遠) has resisted Microsoft's advances, pursuing another partner to keep his company independent.

Yahoo investors including Munder Capital Management's Ken Smith, Jacob Asset Management's Ryan Jacob, Legg Mason Inc's Bill Miller and T. Rowe Price's Larry Puglia have said in the past two weeks they would back a bid if Microsoft increased the price.

The Sunday Telegraph didn't cite anyone in its report.

Time Warner spokesman Keith Cocozza declined to comment. Tracy Schmaler, a spokeswoman for Yahoo, didn't return a call on Monday, a holiday in the US.

Teaming with AOL wouldn't give Yahoo investors the savings they would get with Microsoft, Atlantic Equities LLP analyst Hamilton Faber said.

"Time Warner may have the desire, but as far as Yahoo shareholders are concerned, it is not the best option," said London-based Faber, who advises investors to buy Yahoo shares. "The synergies from combining AOL and Yahoo wouldn't be anywhere near as large as combining Microsoft and Yahoo."

AOL had 4.6 percent of the US Web search market, behind Microsoft's 9.8 percent and Yahoo's 22.9 percent, according to December data from Virginia-based researcher ComScore Inc. Google dominates the market with 58.4 percent share.

Rupert Murdoch's News Corp also has discussed a transaction with Yahoo, a person with knowledge of the talks said last week. For News Corp and its MySpace site, Yahoo would provide little savings because it has no similar business of its own, Faber said.

Both AOL and MySpace have partnerships with Google, which also probably would raise concerns with antitrust regulators in the US, Faber said. A combination with Microsoft probably wouldn't because Google would still dominate the search market, he said.

Yahoo's board has 10 members. Directors led by chairman Roy Bostock and billionaire Ron Burkle are pushing for a greater say in the company's future, the New York Post said on Friday, citing an unidentified person close to the situation. They are concerned that Yang, who cofounded Yahoo more than a decade ago, may reject an offer for emotional reasons instead of financial ones, the Post said.

Yahoo's search for other bidders may be part of a plan to get Microsoft to raise its price, analysts said.
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