Microsoft’s $44.6 billion bid for Yahoo could be the final opportunity for the Redmond, Wash-based software maker to finally catch up with Google in the online application and Web search space, says a Toronto analyst.
“Microsoft’s window of opportunity is closing,” according to Carmi Levy, senior vice-president for strategic consulting at AR Communications Inc. in Toronto.
“Microsoft sees Yahoo as its best shot at not being an ‘also ran’ or [taking] second place to Google,” he said.
Microsoft, the analyst noted, has been fairly successful in its major push towards online software products, but is nowhere near replicating Google’s gains.
“As successful as Microsoft is in offering Live products, its growth is second to Google [in this space].”
Levy said Yahoo would provide Microsoft with an established online brand and a presence backed by a massive audience.
Yahoo, on the other hand, is being thrown a golden lifeline, he said.
Levy noted that the former online rising star, which was among the Internet’s first money makers, has been floundering for years.
“If the company’s shareholders and board agree to the offer, it is recognition that they have ran out of options. They need to take this offer in order to grow.”
A top executive with a Toronto-based Web services firm believes an alliance with Microsoft could help Yahoo realize its full potential.
The two main things going for Yahoo is brand and massive audience, said Ken Schafer, vice-president of product management and marketing for Tucows Inc.
Tucows began as a domain name registrar in the early 1990s but quickly transformed itself into a service and software vendor for Web hosting firms and Internet service providers.
” Yahoo’s problem is it has had a hard time in finding out how to leverage its main assets,” Schafer said. “Yahoo was not able to execute as quickly as people had been hoping it would.”
Schafer said Microsoft’s bid for Yahoo did not come as a surprise, as people in the online marketing industry had been talking about its possibility for years.
“Personally, I hope they manage to pull it off. Competition means innovation, and the more competition, the better.”
A Microsoft-Yahoo union has the potential to dilute Google’s dominance in the online search and advertising market and provide customers more choice, said Levy.
This development, however, could lead to what he called a “duopoly”.
“These two giant entities could further push smaller players into the fringes of the market.”
In a press conference on Friday, Microsoft said it expects the online advertising market to double within the next three years from $40 billion in 2007 to $80 billion by 2010.
The company expects to cut as much as $1 billion a year by obtaining economies of scale due to audience increases, combining research and development efforts with Yahoo and eliminating operational redundancies.
Yahoo represents a new source of advertising and online services revenue for Microsoft.
In the last fourth quarter Microsoft’s online revenues from MSN Windows Live and other properties were $2.8 billion and a registered lost of $949 million.
Combining Yahoo’s business in the equation can potentially boost income and reduce net losses.
Yahoo can also help Microsoft with its online ambitions for Windows, Levy said.
Yahoo has some clear strength in this area with the continued evolution of Yahoo Mail and other acquisitions.