Peter Lauria and Zachery Kouwe at the New York Post have the exclusive report today that Microsoft and Yahoo have picked up merger talks. According to the article, the loss of DoubleClick to Google has forced the two companies to consider alternate means of combating the giant that is Google. As one source says, “they are desperate and need to do something big.” Reportedly, Microsoft is working with Goldman Sachs on the financial terms of the deal, so it is more than just a rumor.
While Microsoft and Yahoo have had no luck in stopping Google’s search dominance, they each have pieces of an internet puzzle that are extremely popular. Their instant messaging services, email, and portals are far more popular than Google’s, and while Microsoft has Windows Live Spaces, the most popular blogging platform in the world, Yahoo has Yahoo Answers and Flickr, both the most popular in their spaces. And those are just the most obvious examples.
The big obstacle to a merger would be the actual merging of the companies and websites. Both have invested a lot of money and technology in their search engines and mail platforms, and neither would want to waste all that effort. In fact, neither search engine or mail system is bad, just that having two of them in a merged company is a difficult prospect. Corporate cultures are different, as are marketing styles, web design styles, and not to forget the thousands of redundant employees who’d have their jobs threatened.
No, the most logical course of action would be to only merge the advertising divisions of both companies. If both companies fully merged, then they should continue with the products they already have, because merging them would likely only decrease market share. Instead, they should leverage their enormous web traffic (easilly most on the net, more than double what Google enjoys) to dominate the advertising market and suffocate Google.
An even better merger would be one not of companies, but of ad divisions. This would cost far less than the $50 billion being talked about for Yahoo, and in fact could be a free mutual joining for financial gain. Yahoo’s Panama system is being talked about as the second coming, and Microsoft’s AdCenter, while showing excellent promise, is not making advertisers happy. Putting Panama over all of Yahoo’s and Microsoft’s properties (and maybe getting Microsoft’s coders to scale it up, since Yahoo’s are way too slow) would create an ad network that could take on Google, without causing problems regarding redundant products.