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Kamis, 08 Januari 2009

Where next for Microsoft, Yahoo and Google?

As 2009 begins, the internet sector faces a challenge to rebuild itself after Microsoft’s

failed takeover of Yahoo, and Yahoo’s failed advertising deal with Google.

By Simon Brew, 5 Jan 2009 at 18:13
Back in June last year, as the potential union between Microsoft and Yahoo all but

disintegrated, the latter’s now ex-chief executive Jerry Yang was regarded as a man taking a

bit of a gamble. In resisting Microsoft’s proposed $44 billion merger deal (read: takeover),

Yang angered some shareholders, and confused many analysts.

After all, what rabbit was Yahoo about to pull out of the hat? What shoots of business

brilliance were forthcoming that allowed Yang to be so bullish about a firm that had

struggled to find a foothold in the past year or two? Outflanked by the likes of Facebook

and finding no way to even dent the armour of Google, Yahoo looked very much the Web 1.0

company fighting in a marketplace that had long since moved on. Not only that, it had also

turned away a bid that even the more generous observer conceded had overvalued the company.

But Yang nonetheless successfully resisted the Microsoft takeover, and instead sought solace

with a tie-up with Google. The pair agreed an online ad-deal that would see Yahoo utilise

Google’s advertising systems, with the latter’s ads appearing next to the former’s search

listings in some cases. Microsoft, meanwhile, pulled out of the potential takeover

altogether (and initially threatened that a more hostile deal could be in the offing), and

instead argued that the Department of Justice needed to step in.

This wasn’t surprising either, given that some alarm bells were ringing as to whether such a

deal between two big companies would even be allowed to get through the necessary regulatory

steps. The deal, which was set for three years with renewal options taking it potentially up

to 10, was said by Google to not need regulatory approvals. However, it nonetheless held

back on kick starting it for nearly four months to allow the necessary bodies to take a

look, with many observers noting that it might hit more problems than it was publicly saying

it was expecting.

Thus, it wasn’t a major surprise when the deal between the two parties was halted. Google

decided to pull out of the prospective partnership after it was informed by the US Justice

Department that it was filing a lawsuit to get the deal blocked. If it had gone ahead, it

would have given Google access to around four fifths of the web search market, and the firm

no doubt figured that it would be embarking on a battle it didn’t stand much chance of

winning. As Google legal officer David Drummond posted: “'s clear that government

regulators and some advertisers continue to have concerns about the agreement.”

The Department of Justice argued that a deal would have removed the incentive for Yahoo to

fight Google in certain areas. Its statement read “Had the companies implemented their

arrangement, Yahoo’s competition likely would have been blunted immediately with respect to

the search pages that Yahoo chose to fill with ads sold by Google rather than its own ads,

and Yahoo would have had significantly reduced incentives to invest in areas of its search

advertising business where outsourcing ads to Google made financial sense for Yahoo.”

Microsoft, meanwhile, lost little time in championing the decision by the US Department of

Justice, claiming that the decision – in the words of a statement delivered by general

counsel Brad Smith – “is significant for advertisers, publishers and consumers, who voiced

overwhelming concern about this illegal deal to law enforcement and policymakers.”

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