Microsoft nears alliance with Yahoo

It is thought that Microsoft and Yahoo may announce a deal today to combine their search engines. They are currently putting the finishing touches to their alliance after completing the framework agreement, 18 months after Microsoft made its opening move with a $47.5bn takeover bid. The aim of the partnership is to take a tilt at market search leader Google, which has been the leader in the field for some time.

A deal between the two giants would guarantee Microsoft number two spot in the search field, with a market share of 30 per cent versus Google’s 65 per cent, and would effectively end Yahoo’s efforts to retain its place in the sector. Microsoft’s Bing search engine, released last month with great fanfare, would be used for the search element while Yahoo would still receive advertising revenues. However the real prize for Microsoft would be the information on computer users buying habits, which would be owned by the software provider.

For Yahoo the deal will allow it to cut costs on development, while allowing it to maximise advertising revenues from the new tie-up. It would also give advertisers an obvious alternative to Google, which could see business move towards the Microsoft/Yahoo alliance.

One concern over the deal is that the anti-monopoly authorities might be opposed to a reduction in the number of search engines. Any deal would be subject to official approval first.

WHAT THEY ARE SAYING:

Danny Sullivan, editor of Search Engine Land in BusinessWeek: "Yahoo doesn't want to look like they've sold off their crown jewel for short-term gain. This creates the illusion that they have more control of the situation than they probably do."

Jessica E Vascellaro and Nick Wingfield, Wall Street Journal: "[Google] should be worried, It's going to give Microsoft in one fell swoop a much bigger share of the search market."