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What Yahoo could do to avoid Microsoft?

india Updated: Feb 24, 2008 21:55 IST
Anupreeta Das
Anupreeta Das
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For Yahoo Inc to avoid Microsoft Corp's bear hug, it could potentially partner with companies ranging from eBay Inc to Comcast Corp, though an alternative deal would be unlikely to match the Microsoft offer.

Retailer Amazon.com Inc, iPod maker Apple Inc and phone company AT&T Inc all could argue that integrating Yahoo's services and ads would be strategically smart, and some already have Internet-advertising partnerships with Yahoo.

None, however, is expected to be able to compete financially with Microsoft, whose offer is now worth about $41 billion, making the alternative deals longshots at best.

Web auction leader eBay struck a multiyear partnership in 2006 with Yahoo, centered on search and advertising, online payments and call functions. A merger could further benefit eBay if it integrated its Web auctions with Yahoo's search technology, said Brian Bolan, an analyst with Jackson Securities. It could also yield cost savings for eBay on Internet search advertising and merge users of Yahoo's email and instant messaging services with eBay's Skype users, he said.

"But such a deal wouldn't solve the question of how you could make online search better, and that's why you would want to buy Yahoo," Bolan said.

Also, eBay -- which recently announced a new chief executive — is itself facing challenges in reinvigorating its auction site and would have to raise debt to buy Yahoo at a higher price, making it an unlikely acquirer, analysts said.

One analyst suggested that Yahoo might find a "natural home" in Apple since it was unlikely Yahoo could stand alone. "It may be that
(Yahoo's) focus on controlling a customer experience means they will finally end up in the arms of Apple," said Colin Tyler, a director at OC&C Strategy Consultants.

A deal between Apple and Yahoo would center on Yahoo providing mobile applications for iPhones, some analysts said. Apple and Google Inc already work together to provide iPhone users with an array of mobile applications, from maps to mail.

But Trip Chowdhry, an analyst at Global Equities Research, said such a deal wouldn't generate much revenue for Yahoo because "any two high school kids could come up with a cool mobile application."

A deal focused on combining Yahoo's other assets is even more unlikely, since Apple makes much of its money from trendy gadgets and Steve Jobs has not indicated he is interested in the Internet-based services such as e-mail, search, messaging and advertising for which Yahoo is best known.

Instead, Chowdhry forwarded the idea that Web marketplace Amazon.com might have already talked with Yahoo about an alliance, whereby Yahoo would close its ailing e-commerce business or merge it with Amazon.com's in the same way that it recently closed its online music business and migrated customers to RealNetworks Inc's Rhapsody service.