What a Microsoft-Yahoo merger would mean for Google

Potential deal could make waves in the search engine pantheon

The potential of a Microsoft-Yahoo blockbuster deal probably doesn't have rivals at Google shaking in their boots just yet, but if a merger comes to fruition Google may have to worry about its hold on the consumer search and online advertising markets.

Googlehas performed well in creating and acquiring interesting technology with audience and advertiser reach, says Yankee Group analyst Jennifer Simpson, while noting Google's purchase of YouTube and Internet advertising company DoubleClick.

But if Microsoft and Yahoo officially announce a merger, Google co-founders "Sergey Brin and Larry Page might be kept up a little bit at night thinking about how they might improve the platform," Simpson says. "But Google's still in a very good position."

Newspapers reported Friday that Microsoft has started a new round of talks with Yahoo, though in the past Yahoo turned down an offer from Microsoft. The companies appear to be in "early-stage discussions" over a merger or some other type of deal that would combine their respective strengths, according to The Wall Street Journal.

Microsoft officials are feeling somewhat threatened by Google's new suite of collaboration and communication tools for businesses, and are deeply bitter about losing out to Google in their bid for DoubleClick, says Rebecca Lieb, editor-in-chief of the ClickZ Network and Search Engine Watch , a publication covering all things related to search.

Microsoft is not the type of company that makes acquisitions right and left, and buying Yahoo would ease some of the pain of failing to take over DoubleClick, she says.

"It was a tremendous blow to Microsoft that they did not emerge the victors in the acquisition of DoubleClick," Lieb says. "I've spoken to people close to that deal and I know it is an enormous pain point at the most senior management levels."

Microsoft wanted DoubleClick so it could better compete with Google in the rapidly growing online advertising market.

"Online advertising is the fastest-growing medium in history. It's gone to a multibillion dollar business in about a decade. Television advertising didn't grow that quickly," Lieb says.

Talk about a Microsoft-Yahoo deal is just speculation at this point, Lieb stressed. A Microsoft-AOL deal might make more sense because the sale price probably would be lower, she says.

Plus, Microsoft and Yahoo would face technological difficulties when trying to integrate their very different products, limiting their ability to compete against Google, Lieb believes.

"I don't think Google's worried about this. I think Google is in the superior position," she says. "Even if [Microsoft and Yahoo] merged today they couldn't get themselves in shape to fight Google tomorrow."

Size in the advertising world does matter, though, and the combination of Microsoft Live Search and Yahoo! would encroach on Google territory in the search market, according to Simpson.

Advertisers will always say the most important factor is search relevancy, so a Microsoft-Yahoo venture would still have to prove it can help advertisers reach the customers they want, she says.

Another possible area of competition between Google and a combined Microsoft-Yahoo company is the range of portal home page services offered through Internet service providers, Simpson says. Microsoft and Yahoo have separately offered these services but their reach into the market has declined as Internet service providers began making their own portal home pages, she says.

Google has not made a play in this area, but it might feel it has to if Microsoft and Yahoo team up and make a compelling offer to ISPs. "That's certainly something Google would be wary of," Simpson says.

Material from IDG News Service was used in this story.

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