For 18 months since Microsoft’s unsolicited takeover bid for Yahoo, an alliance between the two Internet giants has been the obvious — perhaps only — way for the two companies to compete with Web monster Google.
The buyout faltered when Yahoo chief executive Jerry Yang made what was arguably one of the worst business decisions in modern history, holding out for more than the US$47.5 billion that Microsoft was willing to pay.
Now his successor, Carol Bartz, has picked up the pieces at Yahoo and inked a 10-year search and advertising alliance with the world’s largest software company, in which Microsoft’s Bing search engine provides the technology and Yahoo the sales team.
The strategy espoused by Bartz and Microsoft chief executive Steve Ballmer is clear — by combining forces, “Microhoo” search will have the breadth, scale and depth to offer Internet users and advertisers a convincing alternative to Google.
However, don’t expect to see executives at the Googleplex quaking in their flip flops anytime soon.
“We’re interested to learn more about the deal,” Google spokesman Matt Furman said. “There has traditionally been a lot of competition online and our experience is that competition brings about great things for users.”
Privately, one Google source said: “We are not writing them off, but we will continue to innovate and they would need to perform the comeback of the century to beat us.”
Analysts were divided about the impact of the Yahoo-Microsoft deal, but seemed to agree on one thing — the best that the two companies can hope for is to remain a distant second in search advertising, the Internet’s most lucrative sector.
Many believed that the two years the companies would spend on executing the deal would actually create a significant market disruption, allowing Google to further consolidate its dominant position. This is especially true if the companies were made to jump through hoops to satisfy antitrust regulators.
Yet, the annals of business history are littered with dinosaurs who once ruled their industries, only to fail — through myopia, hubris and inertia — to adapt to changing market conditions. Humbled automaker General Motors — gone from titan to Titanic — is the latest example, surviving only on government assistance, like one of its own, laid-off assembly-line workers.
As the nature of Internet search changes, “Microhoo” could have a great opportunity to get a jump on Google, said Shar VanBoskirk, a search analyst at Forrester Research.
“Google is a great search engine, but the next wave of search will be more than just finding Web sites,” she said. “Both Bing and Yahoo try to do that and the partnership will help them develop the online concierge experience that they offer.”
That long-term prospect was of little comfort on Wednesday to investors unfortunate enough to own Yahoo shares. The company’s stock price slid as much as 12 percent in morning trading after the deal was announced.
Many commentators said that investors were disappointed that the hook up with Microsoft failed to include an up-front payment to Yahoo, but the real reason for the slide could go deeper. By outsourcing the core of its business, Yahoo could become irrelevant as an Internet player by the end of its 10-year deal with Microsoft.
“Yahoo is essentially getting out of search,” said portfolio manager Eric Jackson, an activist Yahoo shareholder. “I question if this is the right thing strategically.”
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