It may be the right move on paper, but making it work isn't going to be easy.
That was the general consensus among several analysts following Friday's blockbuster announcement of Microsoft's $44.6 billion takeover bid for Yahoo.
"If Microsoft and Yahoo join forces it will be the most important event in the Internet industry this year, without a doubt," said Ken Cassar, vice president for industry solutions analytics at Nielsen Online.
According to Cassar, the combined entity would be visited by 86 percent of U.S. Internet users, account for 15 percent of all time spent online, and represent 59 percent of online display ad impressions sold, which he said is "really the most significant revenue generator today for most online publishers."
But even if Yahoo execs and its board sign off on the deal, not a given, there are still many unanswered questions — not the least of which is whether antitrust regulators in the U.S. and Europe will approve.
A Microsoft acquisition of Yahoo has been rumored for months, and Microsoft CEO Steve Ballmer confirmed on a conference call early Friday that talks had been going on between the two companies for 18 months.
In addition, there are no guarantees that such a merger would accomplish much more than move Microsoft from a far third-place in search engine usage to a still far second-place by gobbling up its nearest competitor.
Web statistics tracking firm NetApplications' search engine statistics for January 2008 show Google way out in front with 77 percent of global searches, followed by Yahoo with just over 12 percent, and Microsoft trailing way behind with a total of slightly more than 6 percent divided between MSN and Live Search. A combination of Yahoo and Microsoft would control less than 20 percent of the entire market.
Of course, while not directly convertible into cash, search share is a strong indicator of how many advertising dollars those searches yield for ad purveyors.
Creative Strategies analyst Tim Bajarin is bullish on the potential of a Microsoft/Yahoo combination. He notes Yahoo is actually stronger than Google on the content side and has good partnerships with DSL providers. "When you bring both company's research groups together and you can imagine a powerful set of engineering teams working on the next generation of search," Bajarin told InternetNews.com. "There's a real need for something more precise than what we have in the market today."
A Google spokesperson said it would be "premature" to comment on Microsoft's proposed purchase of Yahoo.
For Microsoft, the acquisition stands to help it put its online services businesses in the black. Microsoft announced last week that in the first two quarters of fiscal 2008, its online services initiatives lost $510 million. That includes $245 million in losses for the quarter ended December 31.
In contrast, Yahoo brought in income of $206 million in the final calendar quarter of 2007. Which is not to say Yahoo doesn't need help.
Whereas Yahoo's revenues have been declining, Microsoft overall had another record quarter in terms of revenues and earnings. Between increasing revenues and its huge cash horde, Microsoft is well set to absorb the expenses involved in buying out Yahoo.
"Yahoo was in trouble [and] they were really losing direction chasing Google [because] nobody could be a better Google than Google," Rob Enderle, principal analyst at the Enderle Group, told InternetNews.com.
