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ANALYSIS: Google gains from ending of Microsoft-Yahoo affair

SPURNED SUIT Market watchers said Microsoft did the right thing in walking away because there are other deals it could make, while Yahoo’s shares are expected to fall

AFP , NEW YORK

President-elect Ma Ying-jeou, left, shakes hands with Lee Kai-fu, vice president of Google Inc at Google’s headquarters in Taipei yesterday.

PHOTO: PATRICK LIN, AFP

Microsoft’s failed attempt to buy Yahoo will send it searching for new allies and likely see Yahoo’s share price plummet, leaving Internet giant Google the big winner, analysts said.

Microsoft announced on Saturday that it had given up its quest for the struggling Internet pioneer Yahoo, which rejected Microsoft’s offer even after it raised the original bid by US$5 billion to more than US$46 billion.

The firm’s announcement ended three months of overtures by the software giant, which wanted to merge its Internet resources with Yahoo’s worldwide offerings to gain ground on undisputed online advertising juggernaut Google.

Google meanwhile has increased its share of the Internet search engine market and multiplied its innovations.

The firm recently also announced a way to refine its image searches, based on technology that recognizes images, not text.

Analysts believe moreover that the Microsoft-Yahoo talks have benefited Google, and suggest Microsoft did well to cut them short.

“Microsoft did the smart thing — they walked,” said Silicon Valley analyst Rob Enderle. “Yahoo’s stock price is going to come down like a rock on Monday.”

Experts were surprised that Yahoo did not accept what was considered a generous offer and predict that its stock price, bereft of the prop of Microsoft’s bid, will plunge even further.

Before Microsoft’s offer on Feb. 1 to buy Yahoo for US$31 per share, Yahoo was trading at just US$19 and was on the decline, having lost 33 percent of its value since last October.

“Yahoo is going to have to convince the market they are worth more than they were before the Microsoft offer,” Gartner analyst Van Baker said.

Analysts are also questioning whether Microsoft is not banking on Yahoo’s share price dropping so it can make another, possibly lower, offer.

“They could be betting Yahoo’s stock price is going to collapse and they will be able to get it for even less,” Baker said.

Others believe Microsoft will give up on Yahoo as it continues to lose ground to Google, and move its attention elsewhere. It could buy AOL, part of Time Warner, online marketing firm ValueClick or even social networking site MySpace.

“There are other acquisitions Microsoft can make which, when multiplied, could put them in a better position than buying Yahoo,” Baker said.

Microsoft raised the possibility in its statement on Saturday of deals with “other business partners.”

Despite its near-monopoly in the global computer market thanks to its Windows and Office software, Microsoft remains a dwarf on the Internet, with less than 3 percent of the search market.

Its core business is also facing competition from software available online and often for free, financed by advertising, such as that provided by Google.

Google, Yahoo and Microsoft are fighting over the emerging online ad market, which is worth more than US$40 billion and is expected to double by 2010.

Google has a 30 percent share, Yahoo 14 percent and Microsoft 6 percent.

Microsoft is losing money on its online services, and has increased its purchases in this area.

Its chief executive Steve Ballmer said last year that 25 percent of its revenue would eventually come from online advertising.

In the last few months, the group has acquired Norwegian search engine Fast, marketing firm aQuantive, it has taken 1.6 percent of Facebook, and acquired ScreenTonic, which deals with mobile phone ads, and TellMe voice query services.

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