Failed bid for Yahoo gives win to Google

Google Inc. is the big winner after Microsoft Corp. walked out on its bid for slumping Yahoo Inc. this weekend, analysts are saying.

The Internet search and advertising leader is no longer facing a merger of its two biggest competitors, with Yahoo shares expected to plummet today and software giant Microsoft left with an unprofitable online division.

"I think it's hard to analyze the situation and not see Google as a winner, no matter what happened," said Doc Searls, a technology writer and fellow with the Berkman Center for Internet and Society at Harvard University.

A Yahoo/Microsoft deal would have taken Google's top search competitor "out of the market" and started a long integration process, he said. Disgruntled employees would be likely to leave the combined company.

Without the deal, "You basically have a hobbled Yahoo," Mr. Searls said Saturday on the Gillmor Gang, a conference call of technology writers and analysts.

Redmond, Wash.-based Microsoft pulled the plug Saturday on its plans to acquire Sunnyvale, Calif.-based Yahoo after upping its initial offer by $5 billion to $47.5 billion, or $33 per share, according to a letter from Microsoft Chief Executive Officer Steven A. Ballmer to Yahoo CEO Jerry Yang. The Yahoo board had insisted on at least $37 per share, or about $53 billion, the letter said.

Yahoo shares were trading at $19.18 when Microsoft first made its offer three months ago. On Friday, shares closed at $28.67 on the Nasdaq.

Mr. Ballmer cited Yahoo's recent test of Google's search-based advertising technology - suggesting a future partnership - as a reason for forgoing a hostile takeover. He noted that Yahoo might take steps to make itself less attractive in the meantime.

"In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo undesirable to us," Mr. Ballmer said.

Mountain View, Calif.-based Google was used for 67 percent of U.S. Internet searches in March, according to online traffic-tracking firm Hitwise. Yahoo received 20 percent compared with Microsoft's MSN service at nearly 7 percent.

Google also leads U.S. online advertising with a 24 percent market share at the close of 2007, according to market research firm IDC. Together, Microsoft and Yahoo would have represented a 17 percent slice of that market.

Outsourcing some search advertising to Google could be one of Yahoo's best options, analysts say. Some have speculated that the company might acquire Time Warner Inc.'s AOL. Others say Yahoo might be acquired by another firm.

"Nobody expects it to remain an independent entity," Mr. Searls said.

Microsoft recognizes the explosive growth in Internet advertising as opposed to software, said CNET Editor in Chief Dan Farber.

"This search-advertising thing is like printing money," Mr. Farber told the Gillmor Gang. "And I think that's what Microsoft recognizes; there's a transition going on and they were dominant in the old world, and in the new world they absolutely recognize that things are changing. It's about selling ads, it's about subscriptions, it's about social networking."

Microsoft could come back to the table and make another bid if Yahoo fails to rebound.