Feb 1, 2008 11:38 pm US/Eastern
Microsoft-Yahoo Deal Could Change Web
Merger Between Online Giants Could Take Aim At Google
SAN FRANCISCO (CBS) ―
A combination of Microsoft and Yahoo could reshape the Internet landscape for millions of Web users: Would the two companies join their online portals? Could they rethink the desktop computer to intgrate Web content more directly?
The changes are potentially huge, but probably not in the short term.
Microsoft executives did not indicate Friday exactly what they would do with Yahoo's brand if their bid, now valued at $42 billion, is accepted. But analysts expect the combined companies to preserve many of their separate free services, like instant-messaging and e-mail programs.
A more likely medium-term change is that some of Microsoft's Web content could fade away or get added to Yahoo, which has a vast collection of news and features aggregated from other providers.
Microsoft's Web properties, including its Yahoo-like MSN portal, aren't exactly slouches: They rank third, trailing only Yahoo and Google, in total visitors. But while Yahoo still is profitable, Microsoft's online services are a consistent money loser. The MSN search engine is a laggard, even with recent efforts to soup it up under Microsoft's online umbrella it calls "Live."
Having Yahoo in its tent could give Microsoft a rationalization for abandoning its unprofitable online elements.
"I think MSN folds into Yahoo," said Ian Campbell, CEO of Nucleus Research. "It would be foolish to keep that separate."
"Microsoft didn't leave any doubt that one of the reasons for the acquisition is to better compete with Google," said CBS News technology analyst Larry Magid.
"Yahoo has been struggling lately and Microsoft has never had a
dominant online product. Perhaps by combining forces, they can give
Google the competition that it now lacks."
Perhaps the biggest change Microsoft and Yahoo could achieve together would be creating a better way to combine the Web and desktop computing - not to mention cell phones, TVs, cars and any other gadgets that might someday plug into the Internet.
Consumers who access the Web on cell phones and handheld computers might be the first to find something new as a result of a Microsoft-Yahoo combination. Devices that run Microsoft's Windows Mobile operating system could be better integrated with Yahoo content and possibly yield new services, like social networking functions.
New ideas will be key to compete with Google's Web presence. After all, people don't "Microsoft" or "Yahoo" anything. Microsoft in particular tends to be tolerated more than loved. Google is also leading development of an alternative cell-phone operating system it calls Android.
Eventually, a teamed-up Yahoo and Microsoft might be able to rethink the PC desktop - where Windows still runs 90 percent of the world's PCs - so that Internet data such as stock prices, sports scores and weather are automatically baked in.
"We all have our home page because we have a concept of a home page," Campbell said. Before long, "we may not have a home page - it might just be the background of my desktop. There's no reason why Microsoft can't push this another level."
Microsoft might also use Yahoo's online strengths to galvanize Web-based versions of some of its powerful desktop software applications, like Word and Excel.
Open-source rivals and Google are threatening to bite into Microsoft's lucrative Office software franchise with free versions of those kinds of "productivity" software. Microsoft is developing Web-based versions of its own, but slowly.
Now Yahoo could be the face through which Microsoft offers those online applications. Perhaps one day a Microsoft-fueled package of "Yahoo Apps" will go up against "Google Apps."
Even with these possibilities, analyst David Mitchell Smith, a vice president at Gartner Inc., believes the biggest change from a Microsoft-Yahoo deal probably will be the one most Web surfers don't notice. That will come as the companies try to broaden their ability to deliver ads all over the Internet, wherever it reaches.
It's necessary because being the most popular online destination - as Yahoo already is - is no longer enough. The explosion of blogs, video sites and other user-generated content has made our Internet travels more wide-ranging. As a result, the biggest Internet companies now need their ad networks to reach far beyond their home portals. Google has mastered that. Microsoft and Yahoo have not.
"I think that's really what it's all about," Smith said. "It's about advertising. It's about search."
Where They Have Been, Where They Are GoingA chronology of events leading up to Microsoft Corp.'s rich offer for Web search and advertising competitor Yahoo Inc. Microsoft sees the deal as a way to catch up with market leader Google Inc., by far the best at turning Web searches into cash.
1975: Microsoft founded.
1995: Yahoo founded, begins serving ads online. Microsoft launches MSN Web portal.
1998: Google founded.
2000: Yahoo starts delivering search results generated by Google's technology. Google introduces AdWords, its system for displaying ads next to search results based on keywords used.
May 2001: Terry Semel becomes Yahoo's chairman and CEO.
February 2002: Microsoft taps Overture Services Inc., later bought by Yahoo, to power its advertising-driven search engine. Google overhauls AdWords with cost-per-click model that makes online advertising easier and more cost effective for smaller businesses.
May 2002: AOL picks Google as search and advertising provider.
2003: Google AdSense launches, letting outside Web sites make money by plugging in targeted text ads by Google.
October 2003: Yahoo announces plans to buy Overture, giving it a system for selling search ads similar to Google's AdWords.
February 2004: Yahoo replaces Google search results with its own technology.
April 2004: Google launches free e-mail service Gmail, expanding ad opportunities.
August 2004: Google holds initial public offering.
December 2005: Google makes $1 billion, 5 percent investment in Time Warner Inc.'s AOL and extends ad partnership.
May 2006: Microsoft's launches own Web ad platform, adCenter. Microsoft signs up Facebook as first big client.
August 2006: Google wins search and ad deal with News Corp.'s MySpace and eBay Inc.
October 2006: Google announces plan to buy YouTube for $1.65 billion, giving it a highly popular video-sharing site on which to sell more ads.
November 2006: Yahoo builds advertising partnership with consortium of daily newspapers.
February 2007: Yahoo launches long-awaited search and advertising technology overhaul, known as Panama.
April 2007: Google agrees to pay $3.1 billion in cash to acquire ad-management technology company DoubleClick Inc. Yahoo acquires online advertising exchange Right Media Inc. for $680 million.
May 2007: First rumors hit Wall Street that Microsoft is contemplating Yahoo buyout. Yahoo CFO Susan Decker promoted to oversee advertising operations. Microsoft says it will buy online ad company aQuantive Inc. for $6 billion in cash.
June 2007: Semel steps down as Yahoo's CEO; co-founder Jerry Yang takes over. Decker becomes president.
July 2007: Yahoo launches SmartAds, a behavioral, demographic and geographic ad targeting system.
August 2007: Microsoft buys AdECN Inc., a stock market-like Web ad exchange. It also launches ContentAds, context-relevant ads on some sections of MSN.
September 2007: Yahoo announced plans to buy online behavioral targeting specialist BlueLithium Inc. for $300 million in cash
October 2007: Yahoo announces plans to buy AdInterax, a rich media ad business, for undisclosed amount. Microsoft spends $240 million on a 1.6 percent stake in Facebook, ensures ad partnership will continue.
December 2007: Microsoft steals Viacom ad business from DoubleClick. Other ad deals since the acquisition of aQuantive include financial news site CNBC.com and Digg Inc., a reader-powered news site. Google's proposed buyout of DoubleClick gets green light from U.S. regulators, still pending in Europe.
January 2008: Semel resigns as Yahoo's chairman. Microsoft makes unsolicited $44.6 billion offer for Yahoo.
(© 2008 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)
