Google has raised concerns over Microsoft's audacious $44.6bn (£22.4bn) takeover bid for Yahoo!, claiming that the deal could allow the software company to extend its PC monopoly to the internet.
Microsoft is offering Yahoo! shareholders $31 a share in a combination of cash and stock in an effort to seize control of the struggling company. If it goes ahead, the deal would rank as one of the biggest technology takeovers since AOL and Time Warner merged at the height of the dotcom boom.
There has been intense speculation about a merger of the two, with Microsoft having already made several unsuccessful attempts to swoop on Yahoo! over the past 12 months. However, it now stands a greater chance as Yahoo! has become more vulnerable of late, recently announcing a 23% dip in profits and confirming plans to cut more than 1000 jobs across all areas of its business.
The reasons behind Microsoft's interest are clear. The merger would create an online advertising powerhouse capable of challenging Google's long-standing dominance of the search engine marketing sector.
Google accounts for a 78.6% share of all UK internet searches, compared with 6.8% for Yahoo!, its closest rival, and just 4.8% for MSN, according to Nielsen//NetRatings. Google AdWords commands the vast majority of the £700m currently spent on paid-search advertising in the UK.
Microsoft said a merger would allow it to generate higher online ad revenues and provide better 'user experiences' in video and mobile. 'Together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market,' claimed Steve Ballmer, chief executive of Microsoft.
News of the bid came in a week when billions of pounds were wiped off Google's stock market value after it missed sales and profit targets. It blamed the difficulty of making money from placing ads on social networking sites for the 52% rise in revenues to $3.4bn (£1.7bn) in the latest quarter - lower than the 55% growth analysts expected.
Google also reported a 30% increase in 'paid clicks' in the last three months of 2007, well below the 45% rise of the previous year, suggesting that the growth of its core search ad business is slowing.
However, the company is attempting to strengthen its display advertising credentials in the wake of its £884m acquisition of YouTube in 2006. Google is making its first major effort to profit from user-generated content on the video site, with the launch of a scheme allowing users who post content to earn money from the advertising sold around it.
But time may be running out. If Microsoft and Yahoo! combine their resources, it could enable them to charge down Google's advance on the digital display sector.
DATA FILE - MICROSOFT'S BID FOR YAHOO!
- Microsoft claims the deal would create a more effective competitor in the online market, eliminate redundant infrastructure and improve the financial performance of the combined entity.
- The level of innovation in emerging scenarios such as video, mobile services, and social platforms would be greatly enhanced.
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