Wednesday, December 10, 2008

Gasta News: Microsoft still soft on Yahoo Deal

Key issues to watch in Microsoft's next bid for Yahoo's search business
It's starting to seem inevitable: Microsoft appears poised to make another run at Yahoo's search business. The point was driven home by the selection of Qi Lu as Microsoft's new online chief last week, giving the company a former Yahoo insider to oversee the integration, if it comes to that.

Discussing Lu's hiring during an interview with the Wall Street Journal last week, Microsoft CEO Steve Ballmer all but scheduled the Yahoo negotiations.

"I think a search deal makes great sense for Microsoft, and Yahoo, and I think I've been very open about that," Ballmer told the paper. "That's as true with Qi joining us as it was before Qi joined us. Obviously the logistics of any such integration … can only be simpler by having somebody who will know both sides."

There have been so many twists and turns since Microsoft's original Yahoo acquisition bid that it's impossible to know what will come next. But assuming Microsoft gives a search deal another try, these will be some of the key issues to watch:

PARTNERSHIP OR SEARCH ACQUISITION? Microsoft hasn't been clear on this point. At the company's shareholders meeting last month, Ballmer used the phrase "search collaboration." Some media reports focus on Microsoft acquiring Yahoo's search assets.

Matt Rosoff, an analyst at Kirkland-based Directions on Microsoft, said this morning that the most logical scenario would be a partnership letting Yahoo keep its portal while redirecting search queries to Microsoft's engine and advertising system.

TIMING: The biggest complication here may be Yahoo's ongoing CEO search. Will the Sunnyvale, Calif., company engage in serious talks with Microsoft without a new chief on board? And once the new CEO is in place, how will he or she approach the possibility of a Microsoft deal? In any event, Ballmer made it clear during the WSJ interview that he wants to do something soon.

SEARCH BRAND: On the surface, at least, this seems the easiest issue to resolve. Microsoft is looking for a better search brand, and it appears ready to go off in a new direction with or some other new name. But were the companies to combine search operations, wouldn't the Yahoo search brand be the one to lead the way, based on market position?

PEOPLE AND LOCATIONS: Much of this will depend on the outcome of the "partnership or acquisition" question above. But depending on the agreement the companies reach, it seems reasonable to expect more of Microsoft's search operations to be based in Silicon Valley, building on the existing presence of both companies there.

ANTITRUST: With a combined total of roughly 30 percent of the U.S. search market, a Yahoo-Microsoft search deal wouldn't face nearly the regulatory hurdles that the Google-Yahoo deal did.

But things could get more complicated if the companies bring their Web portals, Web mail or instant-messaging systems into the mix, even tangentially. Particularly on an international level, the market strength of those properties could attract the attention of regulators.

The additional complication is the transition of power in the United States. Depending on how it's structured, a Microsoft-Yahoo search deal could be the first big test of U.S. antitrust policies under Obama and Eric Holder, his nominee for attorney general.

P.S.: Microsoft is holding an internal employee meeting with Lu and Ballmer this afternoon in Redmond. My request to cover it was turned down, but hopefully some details will emerge. Contact me at

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