Friday, April 11, 2008

Where for Yahoo?

Back in February I wrote on this blog that on my Economics of the Internet course "..every new day brings the possibility of change. I never know when I switch on my radio in the morning, or go online to check for the latest news, what important new development might have occurred overnight; for example what has been the latest twist in the ongoing battle between Microsoft and Google for online dominance".

Well that certainly is the case right now as, having yesterday printed off the notes for next Monday's lecture (On Taxation and Regulation Issues) today I am faced with reports of three new significant developments.

First comes a report that Yahoo! and Google are going to conduct a two week trial in which they will be sharing some advertising space in their search results space (see BBC News (2008,1)). During the pilot Google will be able to place ads along side 3% of the Yahoo! search results. The idea is to test whether Google’s approach to search linked advertising displays is more effective in terms of raising revenue than the one currently employed by Yahoo!. Of course this has rung alarm bells with Microsoft, who have a bid on the table for Yahoo! of $44.6 bn. Should the link between Yahoo! and Google become more permanent and extensive, it could give the alliance, in which Google would be the senior partner, control over 90% of the search advertising market. Such an alliance would, of course, first have to be approved by competition regulators – something that seems unlikely. But industry analysts interpret this announcement less as the forerunner of a permanent link between Yahoo! and Google and more as a tactical move to force Microsoft to up its offer if it wishes to take control of Yahoo! Google has an interest in preventing the acquisition of Yahoo! by Microsoft.

Yahoo! executives would prefer a solution that retains some degree of independence for the company, but it is also reported that they are also in discussions with Time Warner’s AOL about a possible merger (see BBC News (2008,2)). The BBC News report says that Time Warner would make available cash to the value of 20% of the merged firm so that Yahoo! could then use this money to buy back some shares. Meanwhile it is also reported that Microsoft could be joined by Rupert Murdoch’s News Corporation in a joint bid to acquire Yahoo! (see BBC News (2008,2) op cit. and Sorkin and Helft (2008)). News Corp. of course already owns MySpace. Microsoft has HotMail and MSN, so as Sorkin and Helft note, such a deal would create a new “Internet landscape”. But, say Sorkin and Helft, we should not yet rule out the possibility of a separate News Corp – Yahoo! link up without Microsoft. Hansell (2008) wonders whether Microsof should ignore Yahoo and try to buy AOL and MySpace? Whatever the eventual outcome, it seems to me that Yahoo! has been right to resist the initial bid by Microsoft (see also the views of Business Week writer Catherine Holahan ( Holahan (2008)).


  1. BBC News (2008, 1) Google and Yahoo to share web ads. BBC News 9th April 2008.
  2. BBC News (2008, 2) Microsoft and Yahoo ‘seek allies’. BBC News 10th April 2008.
  3. Desmond, M (2008) Micro Who? Google Rules The Ad Roost Forbes magazine, 13th April 2008.
  4. Hansell, S (2008) Is Yahoo the Odd Man out? New York Times 10th April 2008
  5. Holahan, C (2008) Is Yahoo right to resist Microsoft? Business Week 8th April 2008
  6. Levy, A (2008) Yahoo Says Ad Program Still Priority Amid Google Test, 12th April 2008
  7. Regan, K (2008,1) Microsoft nearly done asking nicely. E-Commerce Times 7th April 2008
  8. Regan, K (2008,2) Yahoo Pulls Together Rebel Alliance. E-Commerce Times 10th April 2008
  9. Sorkin, A R and Helft, M (2008) News Corp. may join Yahoo bid with Microsoft. New York Times 10th April 2008.


At 12:41 PM, Anonymous Anonymous said...

Since e-commerce started being a trend in 1996, all businesses had something new to worry about i.e. the Internet. This also led to the rise of ecommerce development company which together reduced the world to one single market.


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