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Microsoft and Yahoo: Perfect partners?

• Darren Waters
• 1 Feb 08, 12:47 GMT

Microsoft's reveals the extent to which the Seattle giant has failed to adapt to the internet age.

At first glance, it would seem that Google's success is the key motivator for Microsoft's bid. But it's more complicated than that.

Certainly, a Microsoft and Yahoo joint search engine would in theory give Google some competition in the search and online ad business. But even a combined Yahoo and Microsoft search proposition would still be a long way behind Google.

According to comScore, the worldwide search figures for last August show Google way out in front:

# Google Sites: 37.1 billion (5 billion at YouTube)
# Yahoo Sites: 8.5 billion
# : 3.3 billion
# Microsoft Sites: 2.2 billion

To highlight one point: twice as many people make searches on YouTube alone than make searches using Microsoft's search engine.

But this is about gearing up for the second internet age - an age where commerce, community and communications are dominated by the web.

Microsoft was late to the internet and the company has never denied that. Bill Gates failed to see the potential of the net and from the back of the pack Microsoft has always been playing catch up.

It's not been all failure. From nowhere Microsoft was able to crush opposition in the browser space and Internet Explorer is the most popular way to surf the net.

But as companies like Yahoo and Google, as well as thousands of garage start-ups have shown, from Facebook to Joost, the battle was never really about the browser - it was about services.

From instant messaging and online advertising to social networks, blogs, communities, and IPTV Microsoft is not out in front in any of these areas.

Microsoft is attracted to Yahoo because a purchase would take a key rival out of the game in one swoop.

It also gives Microsoft access to Yahoo's community strengths - websites like the popular photo-sharing website Flickr - and strengthen areas that the two firms compete around now, like communications and advertising.

Microsoft and Yahoo could also benefit from combining their engineering teams. As the online and offline worlds merge and blur in this second internet age companies need the talent to scale their products and offerings.

In the not too distant future every type of electronic device will be online - that requires user interfaces, standards, content, search, archives, video on demand, voice over IP. And that means engineering talent.

Finally, what's in it for Yahoo? Potentially it could turn the company's fortunes around. It has been on the slide for some time with high profile departures and falling shares.

There's no guarantee Yahoo will say yes. At first glance $44.6bn seems like a lot of money. But wasn't Facebook valued at $15bn only recently?