San Francisco: A year ago, Microsoft Corp. and Yahoo Inc. had explored the idea of combining to form a greater competitor to Google Inc.
The talks led nowhere, leaving Microsoft and Yahoo to forge their own paths in pursuit of Google. How did they do? Well, they’re talking again.
In what appear to be early-stage discussions, executives at Microsoft and Yahoo are taking a fresh look at a merger of the two companies or some kind of match-up that would pair their companies’ respective strengths, say people familiar with the situation.
The renewed talks are a sign of the continued growth in Google’s power and problems over the past year with in-house efforts at Yahoo and Microsoft to ride a boom in Internet advertising. Meanwhile, management changes at both companies could help pave the way for a pairing that a year ago couldn’t happen. The talks were first reported in the New York Post. Both Microsoft and Yahoo declined to comment.
For Microsoft, a tie-up could help solve a critical challenge: attracting advertisers to its online businesses. The company over the past few years has built the technical foundation for brokering advertisements online. But the system, called adCenter, has failed to attract a critical mass of advertisers.
Still, Microsoft has technical expertise that might benefit Yahoo. Yahoo is one of the world’s most popular websites, attracting millions of consumers a day to services such as Yahoo News, Finance and email, which in turn attract advertisers. But Yahoo last year suffered a delay in converting to a new online ad system designed to close the gap with Google. Yahoo is also facing increased competition to sell advertisers the graphical display ads, such as banners, that have been its bread and butter.
Yahoo earlier this week had a market value of about $38 billion (Rs1.56 lakh crore). Yahoo shares surged 15% in early trading on the Nasdaq Stock Market to $32.42 on the news of the talks, raising the company’s market value to around $43 billion on Friday. Microsoft shares were trading about 1.5% lower, giving it a market cap of about $292 billion.
Short of a wholesale merger, Microsoft could spin its online group into a separately run Yahoo, in return for a Yahoo stake. But a person familiar with the matter says Microsoft would likely want to acquire Yahoo. The integration of the two firms’ operations would also be a daunting prospect.