Was 'Deep Partnership' Always Microsoft's Goal?

Posted 5/19/2008

Microsoft's () negotiation with Yokel () about a concern trade could give Microsoft what it wanted all along without having to purchase Yahoo.

Microsoft desires scale of measurement for its Web hunt engine and online advertisement engineering to break vie against Google. () It also would prefer not to be in the content creative activity concern with its MSN consumer Web sites.

Analysts state Microsoft could structure a trade to supply hunt and
ad-serving technology to Yahoo. That would barricade a similar agreement Yokel have been negotiating with Google.

Microsoft also could spin around off its MSN Web land sites into a joint venture with Yahoo, analysts say. Microsoft could then concentrate on its core software system businesses.

Microsoft said on Lord'S Day that it was discussing a dealing with Yahoo, but not an acquisition. The disclosure come ups two hebdomads after Microsoft dropped a three-month effort to purchase Yokel after Yokel rejected its raised command of $47.5 billion.

Redmond, Wash.-based Microsoft didn't supply particulars about the possible transaction.

It also didn't govern out another spell at a full-on acquisition of Yahoo.

In a statement, Microsoft said it "reserves the right to reconsider that option depending on future developments and treatments that may take place" with Yahoo, Yokel stockholders or 3rd parties.

"Microsoft have gone back to where it originally was when it first approached Yokel more than a twelvemonth ago," said Flatness Rosoff, an analyst with independent research house Directions on Microsoft.

He added that the world's biggest software system company is interested in a "deep partnership" with Yahoo.

Such a partnership could ensue in assets being swapped, money changing custody and engineering being shared, Rosoff says.

The possibilities for a tie-up between Microsoft and Yokel are wide-ranging, analysts say.

The first order of concern for Microsoft is to win Yahoo's outsourced hunt business. Such a trade likely would be a money also-ran for Microsoft, but it would forestall that concern from going to equal Google, states Yun Kim, an analyst with Pacific Ocean Growth Equities.

Microsoft probably will have got to vouch a lower limit amount of advertisement gross a twelvemonth to Yokel to acquire the business, and footing might be advantageous to Yahoo, states Kim, who have shares in Microsoft.

"They have got no choice. They can't allow Google acquire that trade done," Kim said. "This is about marketplace share and gaining scale of measurement for Microsoft. They're too little to count (to online advertisers) today."

Microsoft's trade with societal networking land site Facebook last autumn was a similar effort to increase traffic to its online advertisement platform, he says. Microsoft paid $240 million for a 1.6% interest in Facebook and the contract to supply advertisement services to the site. Observers state Microsoft beat out out Google and others to purchase the stake.

Microsoft's pitch to Yokel for its hunt concern will be that it can supply the same service as Google, but without the antimonopoly concerns, states Allan Krans, an analyst with Technology Business Research. Microsoft and others have got raised reddish flags about a possible Yahoo-Google treaty because of Google's dominant share of Web search.

A partnership between Microsoft and Yokel would be a "less costly, less hazardous tie-up" than a amalgamation of the two companies, Krans said.

Still, a partnership could be a trial tally for a possible matrimony down the road, he says.

Besides search, the trade could affect Microsoft's MSN consumer Web sites, Rosoff says. Those sites, with pages devoted to news, sports, personal finance and more, overlap with much of what Yokel does.

Content is not a core concern for Microsoft, and it cognizes that, Rosoff says.

"I'm not convinced Microsoft desires to be a immense content land site and a immense publishing house anymore," he said.

Microsoft would rather be in the concerns of software system system and software services, such as as delivering online advertisements and hunt results, he says.

Microsoft's online service concern lost $984 million on gross sales of $3.07 billion in the past four quarters. The unit of measurement accounted for 5.3% of company gross sales during that period.

Microsoft shares drop 1.8% Monday to 29.46.