3 Reasons Microsoft Corporation (MSFT) Is Interested In Yahoo! Inc. (YHOO)


Microsoft Corporation (NASDAQ:MSFT) is the latest company to show interest in Yahoo! Inc. (NASDAQ:YHOO)’s internet business. It is emerging that the software giant has held preliminary talks with private equity firms about a potential takeover. An acquisition of the sought makes a lot of sense as the tech giant could use the opportunity to expand its footprint on search and advertising.

It does not come as a surprise that Microsoft Corporation (NASDAQ:MSFT) is highly interested in the struggling search giant. In 2008, it tabled a $45 billion takeover bid, but a deal never materialized. A poor run on the earnings front and uncertainties about the future means Yahoo! Inc. (NASDAQ:YHOO) has no other option but to accept a spinoff of its internet business.

Bolstering Search Prospects

Yahoo had entered into an agreement with Microsoft Corporation (NASDAQ:MSFT) on the use of Bing for algorithmic and paid search services, before Marissa Mayer took over the reins. The partnership meant that it can no longer operate on desktop as Bing was entitled to the same. The limitation also meant that the company could only focus on mobile search an area it controls a substantial amount of market share.

Mobile search is an area where Microsoft has not had too much success even as it bids to rival Google. The fact that mobile comes with abundant contextual user information is one of the reasons why Microsoft is pursuing Yahoo.

Yahoo! Inc. (NASDAQ:YHOO)’s Search is an asset that Microsoft has long been courting for years. Buying such an asset should help bolster the company’s efforts in its battle with Google over Search.

Google has all along operated as a monopoly on Search with over 60% of market share. That could soon change should Microsoft get its way on the acquisition of Yahoo. Since 2009, Microsoft has grown Bing as it seeks to make it more attractive. Its efforts could now receive the much-needed boost with the acquisition of Yahoo’s Search.

Advertising Opportunities

Getting it right in Search is the only way a company can be able to bolster its prospects on advertising. Google generates a good chunk of its revenue from advertising thanks to its dominance of Search that ensures it has a bigger audience to attract advertisers. Microsoft should be able to bridge the gap with the acquisition of Yahoo! Inc. (NASDAQ:YHOO).

Acquiring Yahoo should help the software giant gain access to a bigger base of internet users. The search giant is big player mobile search while Microsoft through Bing has made substantial ground on desktop search. Combining the two could help Microsoft Corporation (NASDAQ:MSFT) ramp up its market share thus be in a position to attract more ad spending from advertisers.

Yahoo Sports and Tumblr

Gaining access to Yahoo’s blogging platform Tumblr as well as Yahoo Sports could be another reason for a possible Microsoft Corporation (NASDAQ:MSFT) takeover. The two assets should go a long in way in increasing the number of people that the software giant gains access to sell its other products to.

Gaining access to a bigger user base online is what is at stake with the acquisition of Yahoo’s assets. Future battles will be fought online and companies having acknowledged the same are doing all they can to accrue a competitive edge.

Conclusion

Microsoft is a perfect fit for Yahoo! Inc. (NASDAQ:YHOO)’s Internet assets as it already has some stakes on Search. Any other company will essentially be getting an empty shell given Yahoo’s deteriorating prospects.

Regardless of how Microsoft Corporation (NASDAQ:MSFT) structures any deal, it should be able to restore Yahoo! Inc. (NASDAQ:YHOO)’s prospects especially on Search. It will also be acquiring a valuable brand and an important web destination for advertising.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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