• E-mail this page
• |  Print this page
• | 
• | 
• | 

MicroHoo2: This Time It's Sensical?

Microsoft is reconsidering a deal with Yahoo. Microsoft's last plan was to buy Yahoo outright, which would have led to an opportunity-consuming mess as redundant products and services were trimmed. This time it's looking for a limited partnership -- but what do they have in mind?

Microsoft's statement is somewhat vague, referring only to a "transaction" with Yahoo. Kara Swisher's sources say that Microsoft wants just Yahoo's search and ad keyword business. That kind of cherry-picking deal makes sense for Microsoft; it could use any boost it could get in the online space and keyword advertising has the potential to drive a lot of revenue.

Although Yahoo's search ad network has had its share of click fraud and quality problems, at least it has traffic. MSN would love to have that traffic, and if it tried to build its own search ad network it also would have to follow the same learning curve. Picking off Yahoo's search ad division would definitely give Microsoft a jump start.

But what would be the price? As Google's balance sheet shows, keyword search advertising is one of the few proven moneymakers on the Internet. Yahoo would be giving up a lot of its revenue potential. Microsoft seems to be saying it has the ability to go on without Yahoo, but if it is this hungry for a Yahoo deal, you know it will lead to a higher price.

If this second Yahoo deal doesn't work out, Microsoft's statement makes it clear the company reserves the option to return to Plan A to make another bid for all of Yahoo. Carl Icahn is making an effort to replace Yahoo's board of directors; if he is successful, the new board will probably be more receptive to a Microsoft offer. My guess is that Yahoo's new Icahnified board will know its role -- sell, sell, sell to Microsoft -- and is only haggling over price.

« Eight Things Microsoft Can And Should Do To Be More 'Open' | Main | Man Answers Cell Phone On Plane, Refuses To Get Off, Raises Ethical Questions »