INDIA BUSINESS WORLD - FEBRUARY 1st - FEBRUARY 15th - 2008
MICROSOFT MAKES $44.6-B OFFER FOR YAHOO! TO TAKE ON GOOGLE
MICROSOFT, the world’s biggest software maker, made an unsolicited $44.6-billion offer for Yahoo! Inc to challenge Google’s dominance in internet search services and advertising.
A big present in a marriage between the two companies will be India. Both companies have strong development and support presence in the country and have adopted aggressive strategies in the fast-growing and youthful market for internet content and services.
Microsoft CEO Steve Ballmer is attempting the biggest technology takeover after failing to compete with Google in a market that may almost double to $80 billion by 2010. Google has grown faster than Microsoft in every quarter since Google’s 2004 initial public offering, as its search engine has won more users.
Microsoft is under massive pressure to expand its internet business to fend off competition from rivals such as Google, and this deal shows how desperate they are,’’ said Thomas Radinger, a fund manager at Pioneer Investments in Munich, which oversees about $95 billion, including Microsoft shares. ``It’s a huge gamble as the price is steep and it will take years to successfully integrate such a massive acquisition.’’
Yahoo, based in Sunnyvale, California, said it plans to evaluate Microsoft’s proposal ``promptly”.
India is one of those markets where Yahoo is neck-and-neck with Google in attracting traffic, and a combination with Microsoft Network (MSN) will make it even more formidable. MSN comes fifth in a market that has 40 million users, but is showing rapid growth.
The online advertising spend is also expanding, estimated by some industry players to reach $120 million by March 2009.
India has become an important research and development hub for Microsoft and Yahoo outside the US. Yahoo has a total headcount of 1,500, with its R&D operations solely located in Bangalore.
On the other hand, Microsoft India Development Centre (MIDC) in Hyderabad employs 1,400 people. The centre has filed 180 patents in the last three years. Besides, Microsoft Research, which is into fundamental and applied research in computer science, is based in Bangalore with around 50 researchers.
Globally, Yahoo’s inability to crack Google’s dominance in search has led to eight straight quarters of declining profit and a stock that’s lost half its value in the past two years.
“It shows how serious the threat is from Google,’’ Jordan Rohan, an analyst at RBC Capital Markets in New York, said in an interview. ``Yahoo is vulnerable. Investors are losing patience with the Yahoo management team.’’ The New Yorkbased analyst rates the stock `outperform’’.
Google, based in Mountain View, California, captured 56% of US Web queries in December, almost double the combined share for Yahoo and Microsoft, which attracted 18% and 13%, according to New York-based Nielsen Online. Searches will account for 37% of the $27.5-billion US online advertising market in 2008, estimates research firm EMarketer.
Yahoo has also lost sales in the market for graphical, or display, ads to social networking sites like Facebook and MySpace. Cofounder Jerry Yang replaced Terry Semel as CEO in June to re-ignite sales growth. Microsoft increased competition with Google by agreeing to buy 1.6% in Facebook, the second-most visited social networking site.
Microsoft and Yahoo explored ways to work together in late 2006 and early 2007, according to a letter Ballmer sent to the Yahoo board. Yahoo rejected the idea of being taken over by Microsoft a year ago, the letter said.
“This combination provides value to advertisers in the form of more scale and more inventory,’’ Kevin Johnson, who runs Microsoft’s Windows and Internet group, said in an interview. ``It provides value to publishers, in terms of integrating the ad platform.’’
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