Microsoft bids for Yahoo!

Microsoft has made an approach for Yahoo!.

It’s not the first time that Microsoft has tried to find ways to work with Yahoo!

There are obvious synergies and opportunities for Microsoft. The deal would give Microsoft’s advertising sales division – which has been recently bolstered by the acquisition of aQuantive and other small online ad sales players – a vast amount of well trafficed Web property to sell. Online advertising sales are expected to double in the next three years to US$80bn.

The deal would provide an established channel for a Web based version of Office to compete with Google Docs and there would be value – potentially – in combining the Hotmail and Yahoo! email constituencies.

The following section is from Yahoo! Finance:

Yahoo would give Microsoft dominance in Web banner ads used by corporate brand advertisers. It also attracts more than 500 million people monthly to sites devoted to news, finance and sports, and Yahoo Mail is the No. 1 consumer e-mail service.

On the topic of email, I must say that I wasn’t impressed by the new Yahoo! mail service and have reverted to the ‘Classic’ product.

On the down side, you’d have to wonder how easy it would be to align the diverse cultures of these two companies and how keen the Yahoo! employees would be to work for the dark empire Microsoft (Will the talent leave? Hello Google!). Also, Microsoft’s cultural leaning towards software release cycles wouldn’t represent a good fit with the dotcom ethos where innovation and development is a part of every working day.

Search is clearly a massive lead generator for an Internet company and Microsoft pursues this market aggressively and keenly. One wonders if two companies that have struggled in search, or at least have failed to take the lead, would represent an effective competitor to Google anytime soon.

If the bid is successful, both companies will take their eye off of the ball while they deal with the integration of the two companies, providing Google with an opportunity to extend its lead. Google already has a 75% market share in search advertising compared to Yahoo!’s 9%.