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Google rivals plot: Yahoo, Microsoft in Talks of Major Search and advertising partnership

By Amarendra Bhushan for CEOWORLD Magazine Updated:April 12, 2009

Microsoft and Yahoo! are back in talks over a possible Search and advertising partnership to forge a partnership in the online world.

After a failed takeover bid by Microsoft followed by the exit of Yahoo! Inc. CEO, Jerry Yang the two parties are reportedly in talks over a possible advertising partnership.

The talks apparently included a face-to-face meeting last week between Yahoo! chief executive Carol Bartz and Microsoft’s CEO Steve Ballmer, All Things Digital’s Kara Swisher reported on her blog BoomTown.

The generally well-informed Swisher, citing “sources with knowledge of the situation,” described the talks as “preliminary” and “focused on what kinds of commercial relationship Yahoo and Microsoft could have in the future.”

Amid media reports, Microsoft CEO Steve Ballmer met Yahoo! Inc. CEO Carol Bartz to discuss a potential partnership on advertising and internet search. However, the talks did not consist of any acquisition bids on Sunnyvale, the California-based Yahoo.

Last year, Yahoo turned down a $47 billion offer that Microsoft made to takeover the Web search portal, but with Carol Bartz at the helm, Yahoo is beginning to look different. The former Amazon.com CEO is already implementing several changes in the company’s structure, but one thing she won’t do: sell Yahoo’s search business. That’s a fact she strongly stated. However, a Microsoft-Yahoo deal under which Microsoft would sell search ads for Yahoo, and Yahoo, in turn, would sell display ads on Microsoft properties, isn’t a thing you throw away before taking a very close look at.

Microsoft has been making efforts to catch up with Google in the Web search market or at least show sings that it has the capability. The software giant even hired top search execs and engineers that left Yahoo such as Qi Lu, a well-known technologist who is now president of Microsoft’s Online Services Group. Nevertheless, without the Web search volume only Yahoo can provide, all efforts seem to be in vain. Currently, in terms of audience and base of advertisers Google is incomparably higher than Microsoft.

The deal, if it goes through, may see Microsoft selling Yahoo’s search ads while Yahoo may be seen managing Microsoft’s display ads.

Among the possibilities highlighted by Swisher:

* Yahoo takes over Microsoft’s display and premium ads and Microsoft runs search advertising;

* That joint operating agreement of sorts would create a bundle to compete with Google;

* Microsoft buys Yahoo’s search business.

In a bid to merge online resources to effectively battle internet giant Google that rules more than 60 per cent of the US online search market, Microsoft had offered $44.6 billion for the acquisition of Yahoo in February 2008.

However, as Yang refused the bid saying that the “proposal is not in the best interests of Yahoo! Inc. and its stockholders”, it irked many shareholder groups including billionaire investor Carl Icahn. This also resulted in stepping down of Yahho’s co-founder Yang from the position of CEO.

Later, the Yahoo board appointed Carol Bartz as CEO after her successful stint at Autodesk.

Both Yahoo and Microsoft declined to comment on the talks. But Ballmer had expressed an interesting in resuming talks about a search deal with Yahoo since Bartz replaced Jerry Yang as the Web portal’s CEO in January.

Microsoft is preparing to relaunch its search engine, under the working name Kumo, this summer. Working on the project are a number of former Yahoo executives and technologists including Qi Lu, who now heads Microsoft’s overall online efforts.

By joining forces, Yahoo and Microsoft could potentially pose a more serious challenge to Google, which controls about two-thirds of the search market. The resumption of talks between the two companies was first reported by the D: All Things Digital bloghttp://kara.allthingsd.com/20090410/yahoos-bartz-and-microsofts-ballmer-finally-talking-about-search-and-advertising-partnership/ Friday.

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