Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Again With Yahoo! and Microsoft

Yahoo! (Nasdaq: YHOO  ) was a big winner on Friday, with its shares trading 6% higher on chatter that Microsoft (Nasdaq: MSFT  ) might acquire the Web giant. Is that the sound of wedding bells in the air?

Addressing a UBS conference on Thursday, Microsoft executive Kevin Johnson revealed that his company aspires to nearly triple its share of the search-engine market over the next three to five years. It also wants to command a thick 40% slice of the online advertising market -- a far cry from its 6% sliver today.

How can Mr. Softy go from delivering just 12% of search-engine queries -- according to Nielsen Online data from September -- to a 30% chunk? It can't get there organically. That would require Microsoft to get smarter, and Google (Nasdaq: GOOG  ) and Yahoo! to get dumber, at a virtually impossible pace.

But as Henry Blodget suggested in a blog entry connecting the dots, Microsoft could achieve its goals if it bought Yahoo! The Friday morning post made enough sense to send shares of Yahoo! barreling higher.

I now pronounce you Steve and Jerry
Blodget is right. A look at the data shows you that there isn't much of a Plan B if Microsoft doesn't team up with Yahoo!

September Share of Searches










Source: Nielsen Online.

Google's search share is at 54% and growing. It also has a partnership -- and a minority investment -- in Time Warner's (NYSE: TWX  ) AOL for another 6% of the market. And earlier this month, Google extended its deal to provide paid search ads on IAC/InterActiveCorp's (Nasdaq: IACI  ) In other words, it already has its claws sunk into at least 62.2% of the market. 

If Microsoft is serious about its aspirations, there is just no way it can arrive at controlling a 30% piece of the pie without swallowing Yahoo! Nickel-and-diming its way there with tiny players such as MIVA (Nasdaq: MIVA  ) and LookSmart (Nasdaq: LOOK  ) won't work.

The only thing left to ponder is why a Microsoft executive would lay it all on the line the way Johnson did. Even if no one can fault the company for missing its sky-high aspirations, isn't it giving Yahoo! the upper negotiating hand by presenting such lofty goals?

Prelude to a diss
This isn't the first time the companies have been joined at the lip. A New York Post story back in May placed both companies at the bargaining table. Talks apparently broke down a few days later.

If Microsoft is serious, it had better buy Yahoo! soon. Yahoo!'s shares have been stagnant in recent years, reflecting the dot-com heavy's moribund financials, but a string of timely overseas investments is making Yahoo! a bigger force in Asia than it is back home.

Those overseas moves have been enough to move shares of Yahoo! higher despite its flawed quarterly performance results. A growing perception exists out there that Yahoo! is a lower-risk way to play many of the hot Asian markets. Microsoft can't afford for that perception to continue if it wants to win Yahoo!'s attention.

It may not have to. Yahoo! is smart enough to know that it's not firing on all cylinders. The company routinely posts its quarterly reports during the same week as Google. Investors see that the lead is widening, with Google pulling further away with every passing conference call.

Yahoo! could use a little Mr. Softy muscle in its corner. The puzzle pieces don't fit perfectly, but close enough. Besides, when you get down to it, Microsoft is the largest company that could buy Yahoo! without drawing a lot of regulator scrutiny.

Maybe there's a reason Yahoo! didn't seek out a flashy CEO replacement from the outside world when Terry Semel moved on. Maybe there's a reason Microsoft hasn't put out a third-party publisher ad platform like Google's AdSense and Yahoo!'s YPN.

In a nutshell, maybe Yahoo! and Microsoft have been complacent in watching Google pad its lead in search because they know that they will wind up together in the end, like in some feel-good Nora Ephron romantic comedy.

So cut to the chase and get the courtship over with, Mr. Softy. Let's get to the end credits of this predictable melodrama. That is, after all, when the real fun will start.

Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 540443, ~/Articles/ArticleHandler.aspx, 10/27/2016 8:41:23 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:00 PM
MSFT $60.10 Down -0.53 -0.87%
Microsoft CAPS Rating: ****
YHOO $41.87 Down -0.21 -0.50%
Yahoo CAPS Rating: **
GOOGL $817.35 Down -4.75 -0.58%
Alphabet (A shares… CAPS Rating: *****
IAC $65.48 Down -0.78 -1.18%
IAC/InterActiveCor… CAPS Rating: *****
LOOK.DL $0.00 Down +0.00 +0.00%
LOOKSMART, LTD. CAPS Rating: No stars
MIVA $0.22 Down +0.00 +0.00%
MIVA, INC. CAPS Rating: No stars
TWX $88.30 Down -0.40 -0.45%
Time Warner CAPS Rating: ***