The rational behind Microsoft’s bid for Yahoo
1) Compete with Google
Microsoft has recently invested heavily in honing its own search engine and advertising technology, but neither it nor Yahoo have helped close the gap with Google, which dominates Microsoft and Yahoo in U.S. search queries and related advertising revenue. As the Google continues to consolidate its position in the growing market, Microsoft needed a big move to try to catch up in the online business.
Microsoft’s acquisition bid for Yahoo is aimed to create a more credible competitor to Google, to deepen Microsoft's position in the market for online business software, and to grab the growth opportunity of booming online advertising market, which is forecasted to double from US$ 40 billion in 2007 to nearly US$ 80 billion in 2010.
The combined company would increase the competition in the market place, which should bring down the price of online advertising and improve the customer and user experience. The vast majority of Google's net income comes from online advertising. An entry by a combined Microsoft and Yahoo into this market could hit Google hard.
The combination will allow Microsoft to leverage its control of IE, the operating system and its enterprise software to build a more intelligently combined desktop and online computing experience that will leave Google playing catch up. Although Google is extremely powerful in online advertising and is a famous provider of some online services (GMail and youtube), Google's reach is currently limited to the internet. A combined Microsoft and Yahoo would be a significant second player in online advertising as well as the dominant player on the desktop and within the enterprise.
The Google challeng ...