Google and the Microhoo!

The blogs were alight last year on a similar news and it is the same this time. Microsoft announced another bid for Yahoo totaling to a staggering $44 billion ( at a premium of 62% to Yahoo’s current share price). In a conference note made public, Microsoft announced its move as:

The combination of Microsoft and Yahoo! will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising. The alternative scenarios only lead to less competition on the Internet.

Yahoo’s reply to the bid was quite diplomatic:

Yahoo so far has little to say except that its board will carefully examine Microsoft’s bid – a process that “can take quite a bit of time,” according to a message posted on the Sunnyvale-based company’s Web site.

The review “will include evaluating all of the company’s strategic alternatives, including maintaining Yahoo as an independent company,” Yahoo said on its Web site.

Google’s official response to the bid was also quite alarmist:

So Microsoft’s hostile bid for Yahoo! raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It’s about preserving the underlying principles of the Internet: openness and innovation.

So what to make of the things that are going to affect the internet as we know it?

Search and web applications

Google has been a clear leader in the search front with Yahoo a far second and Microsoft a third. Between them they capture close to 98% of the search advertising market. Clubbing together of Microsoft and Yahoo in this space makes for a better competitor. But that in no way poses a threat to Google. In many ways this is the best that Microsoft can do to arrest market share from Google on the search front.

On the portal side, yahoo remains the most visited site on the web and that is the front that MS seeks to capture. Also, it may be the one threat that Google is bothered about – Microsoft locking users into portals, making them an integral part to the whole Windows experience. But will that really get users away from Google ?

And to add to the mix are Yahoo’s email and other portal services.

Innovation on the web

It all comes down to the thrust to innovation that the acquisition will provide. Yahoo has little to offer when it comes to really topping Google. Microsoft has been known for its strategy of pushing its agenda by stifling innovation. Google, for all its stress on innovation has not been really tested with real competition to its services. The legal aspects to this acquisition may be a long drawn battle between MS and Google.

What the user can expect

There are several similar services between Microsoft and Yahoo and the question is whether all will continue. The initial assessment is that they have to since Microsoft can least gain from losing valuable Yahoo users ( or users of its own services). There are whole lot of avenues that emerge for advertisers with combined acquisitions made by Yahoo and Microsoft in the advertising space.

On the whole, this is the perhaps the best weapon that Microsoft wields to arrest Google’s growth. This deal will be about what Microsoft does accomplish in its quest to topple Google.

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