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Spoils of Yahoo Deal Would Exceed Ad Revenue

Microsoft's first priority in an unsolicited bid for Yahoo is to be able to compete better with Google for the ad revenue that comes along with Internet searching. But a merger would bring Microsoft a lot of other goodies, too — including e-mail services, photo sharing and social networking.

Google remains the dominant player in the online advertising game, and it's clear what the search-engine giant is about from a visit to its home page, which is nearly blank except for a box awaiting search terms.

In contrast, the Yahoo home page is a full of services, including personal ads, games, jobs and many content areas: technology, cars, finance, food, movies, music ... the list goes on.

There are also popular properties that don't have the Yahoo name, but which are owned by the company. These include the photo-sharing site Flickr and the social-bookmarking site Delicious.

And both Microsoft and Yahoo have extremely popular e-mail services. In fact, Charlene Li, an analyst with Forrester Research, estimates that a Microsoft-Yahoo union would cover about 90 to 95 percent of all e-mail and instant-messaging use.

That's a level of market penetration that has Google chief legal officer David Drummond up in arms. In a note on the company's Web site, he expressed fears that Microsoft and Yahoo might find ways to keep users from gaining access to the instant messaging, e-mail and Web-based services of competitors like Google.

He points out that Microsoft has been accused of anti-competitive practices in the past.

But, Robert Litan, a former Justice Department antitrust official, says the government won't be looking at past behavior in assessing a potential Microsoft acquisition of Yahoo. It will look at what a merger might do to market share.

Litan says any decision involving e-mail or IM will depend on whether officials separate them out from other online services.

"Once you decide the relevant market or define it, a lot of things fall out from that," he says. "You know how concentrated the market is to begin with — or if the merger will make it more concentrated."

Litan says if Justice Department officials see MySpace, Live Journal, LinkedIn or any number of networking sites as part of the a market that includes e-mail and IM, then a Microsoft-Yahoo merger wouldn't seem threatening.

Yusef Medhi, who oversees large-scale mergers at Microsoft, says the future of these services is in such flux that it might be hard at this point to define them as a closed market.

"There is a broad set of services out there that are going to evolve over time," Medhi says, citing e-mail, instant messaging, social networking, text messaging and voice services as examples.

Medhi says Microsoft believes that these services will offer new ways of making money online in the future, especially when their properties are combined with Yahoo's. Li agrees.

"If I bought shoes on Zapos.com, I can tell my girlfriends about it on MySpace or Facebook or put up photos on Flickr or bookmark those things on Delicious," Li says. "Those are new activities that represent marketing opportunities."

Microsoft is still most interested in getting some of that online search advertising revenue away from Google. But all the other properties that it would gain by acquiring Yahoo make the potential deal look even sweeter.

Copyright 2023 NPR. To see more, visit https://www.npr.org.

Laura Sydell fell in love with the intimate storytelling qualities of radio, which combined her passion for theatre and writing with her addiction to news. Over her career she has covered politics, arts, media, religion, and entrepreneurship. Currently Sydell is the Digital Culture Correspondent for NPR's All Things Considered, Morning Edition, Weekend Edition, and NPR.org.