Beware of geeks bearing gifts...

Published on Friday 1 February 2008 21:12

WHEN computer giant Microsoft launched a daring £22 billion takeover of Yahoo! yesterday, millions of internet users clicked on the Google search engine to learn more about the deal.

And it is that dominance of web that has forced Bill Gates to take on Google, which leaves Microsoft's online advertising revenues trailing.

While Google has 58 per cent of the global market, Yahoo! has seen its share fall to 23 per cent.

If the deal succeeds, it would create the world's biggest internet company.

Shares in Yahoo! leapt 54 per cent after the proposal was made public. However, the acquisition looked uncertain last night as the US government's justice department announced it would scrutinise any deal, which could breach competition rules.

Competition authorities in the European Union are also likely to investigate the tie-up.

Microsoft insisted the commercial union would inject competition into an advertising market "increasingly dominated by one player".

The proposed takeover, contained in a letter to Yahoo!'s board, follows predictions that the online advertising market will double in size to around 40.2 billion by 2010. It also comes days after Yahoo! reported a drop in its fourth-quarter profits.

Yet the true value of Yahoo! is clear, given that its main portal remains the most visited site on the internet, closely followed by its well-established mail application, news services.

According to its letter, Microsoft attempted to enter talks about a deal a year ago, but was rebuffed. Yahoo! was understood to be confident about reorganisation and operational activities it was undergoing at the time.

However Microsoft's letter said: "A year has gone by, and the competitive situation has not improved." Microsoft said that Yahoo! shareholders could choose to receive either cash or shares.

In a statement, the board of Yahoo! said yesterday it will "carefully and promptly" study Microsoft's bid.

Although Yahoo's management has previously insisted it wants to remain an independent company, their argument is weakening, in the face of slowing growth and layoffs of up to 1,000 staff, announced earlier this week.

If accepted, and approved by regulators, the latter giant believes that its move will estab-lish a "credible alternative" to Google.

However, Tino Nombro, the managing director of Ambergreen, an Edinburgh-based search marketing company, urged caution regarding Microsoft's overtures.

"Despite Yahoo! being one of the oldest and largest internet directories, it has not responded to Google's dominance and rapidly growing market share in recent years," he said. "Microsoft and Yahoo! are Google's only competitors but are so far behind it is difficult to see if a takeover or merger will have any impact.

"Indeed it might simply take away the competitive edge they both had while racing against each other to catch up."

END OF ERA FOR SITES?

FOR the average user, it is unclear whether the takeover of Yahoo! by Microsoft might herald the end of some of the internet's most successful sites.

If the offer is accepted, then internal politics will dictate how the complex, and contentious amalgamation process will take place. It is possible there will be a merger of the likes of Microsoft's Hotmail service and Yahoo! Mail, two powerful brands, both free to use, coupled with the problems of combining the servers and algorithms which make the programmes function.

One of Yahoo!'s most prestigious sites, the photo sharing website Flickr – which has a user base of tens of millions – is all but certain to remain, as are the firm's comprehensive news and finance services, considered to be far superior to Microsoft's offerings.

The most likely change is in the company's staff: Yahoo! is already pressing ahead with plans to cut its workforce by 1,000.