Microsoft stuns industry with $44.6 billion bid for yahoo

In its continuing quest to become a dominant player in the online advertising industry, Microsoft believes the best way to catch up with Google is to join military unit with Yahoo. The two rival have tossed around the idea of forming an confederation in the past.

career the proposal "unsolicited," Yahoo issued a statement noting its Board of Directors will evaluate the offer "carefully and quickly in the linguistic context of Yahoo!'s strategic plans and pursue the best course of study of action to maximize long-term value for shareholders."

The ultimate goal from Microsoft's point of view is to morph the twofirms' search indexes and ad platforms to reduce redundancies in support systems, improve efficiency, and ramp up publishing house yield and ad stock list to a possibly massive scale for advertisers.

Microsoft, Yahoo: At a glimpse
	Microsoft*	Yahoo**
Annual Revenue	$51.1 one million million	$6.97 billion
Net income	$18.5 billion	$660 1000000
Cash, short-term investments as of 12/31/07	$21.7 one million million	$2.4 billion
Employees	79,000	14,300
Of Top 20 Ad Publishers, Share of Online Display Ads, 11/07	6.7 percentage	18.8 percent
Web Site, Unique Visitors in 12/07	123.2 1000000	114.1 million
Web Site, Time Per individual in 12/07	2 hours, 8 min	3 hours, 5 min
Search question in 12/07	940 1000000	2.2 billion
*Microsoft's annual gross, net income based on fiscal year ended June 30, 2007. **Yahoo's earnings are for fiscal year ended Dec. 31, 2007 Web site visitant statistics are provided by Nielsen Online. hunt query and online display ads statistics are provided by comScore.

"In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work jointly...While a commercial message partnership may have made sense at one time, Microsoft believes that the only option now is the combination of Microsoft and Yahoo! That we are proposing," wrote Microsoft CEO Steve Ballmer in a letter sent to Yahoo's board of directors yesterday.

At that time, a merger had also been proposed, but was rejected by Yahoo's board, according to the missive. However, as noted in the letter, Yahoo's board has expressed interest in an acquisition by Microsoft since February 2007.

Yahoo has struggled to keep up with the changing pace of the interactive ad industry. Although the company has shown dedication to righting its course, constant restructuring and staff turnover, in addition to a series of disappointing financial reports, have dogged the firm.

Adding to the disruption, Chairman and former Yahoo CEO Terry Semel ended his chairmanship on Thursday, the day Microsoft's letter reached members of Yahoo's Board. Board member Roy Bostock will take his place.

During Yahoo's Q4 2007 earnings announcement this week, CEO Jerry Yang said "profound changes" are on the horizon for the company, including layoffs of about 1,000 staffers by mid-February. The company currently has some 14,300 employees.

Microsoft said it has put an integration plan in place, and intends to offer retention packages to key Yahoo employees. According to Kevin Johnson, president of Microsoft's Platforms and Services Division, the integration plan is based on recent integrations of digital ad services firm aQuantive and voice-enabled mobile search provider Tellme.

Ballmer suggested the combined companies would create broader scale in search and non-search ad offerings, operational efficiencies, and technological prowess. "The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform," he wrote, adding, "Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced."

Until its name was finally mentioned, Google seemed like the elephantin the room during a conference call Microsoft held this morning todiscuss the proposition. "The fact is the industry will be betterserved by having a more credible alternative" in search andadvertising, said Johnson, without actually uttering the G-word.

Eventually, though, Google was named outright. Because of itstowering market share, "Google's clearly prevented by the antitrustlaws from buying Yahoo or buying this business from Yahoo," Johnson continued.

While Google's acquisition of DoubleClick remains stalled by the European Commission, Microsoft believes its proposed Yahoo buy would pass regulatory inspection by second half of calendar year 2008.