A viable challenge to Google?
Whether a Microsoft Corp.-Yahoo Inc. combination would put a real obstacle in Google Inc.’s path or just a pothole would depend on whether the merged company got the kind of dynamic leadership that neither side has exhibited in recent years, analysts said Friday.
The two companies have complementary strengths that ought to make them a tougher competitor as a team, such people said. But that’s only if they can work as a team and take advantage of Microsoft’s technology and raw financial power and Yahoo’s attractive content.
“To make this really sing, you’ve got to have a person at the helm who’s a truly visionary leader,” said Gartner Group analyst Allen Weiner. “I don’t see that person at either company right now.”
One item on the leadership agenda might be getting Microsoft to swallow some pride and admit that some of its offerings are less compelling than those of its intended partner, Weiner and other experts said.
If the two companies’ search and news-aggregation functions were integrated under one name, the result might be a boost for Yahoo’s brand -- with its more popular array of sports, weather, business and entertainment sites -- at the expense of those bearing Microsoft’s MSN and “Live” monikers.
In any event, the advertising community will be rooting for the deal to close because it fears the increasing dominance of Google in the online paid search category, where it has about two-thirds of the market.
“A lot of people want an alternative to Google,” Standard & Poor analyst Scott Kessler said.
Simply adding Microsoft’s and Yahoo’s shares together doesn’t make them more formidable in the paid search arena. That will take the kind of joint research-and-development innovation that Microsoft’s Steve Ballmer said he expected from the proposed merger. But combining the two companies should help block Google’s inroads into online display advertising, where it trails Yahoo and Microsoft, as well as Time Warner Inc.’s AOL unit.
And what of AOL?
Time Warner’s new chief executive, Jeffrey Bewkes, came into that job just last month under pressure to streamline the company and focus on its core news and entertainment brands. That means divesting its remaining stake in Time Warner Cable, most analysts say, and it also may mean finally cutting AOL loose eight years after one of the media industry’s biggest merger flops.
A union of Microsoft and Yahoo would seem to imply that two of the most promising potential buyers of AOL are out of the market. Yet Oppenheimer & Co. analyst Jason Helfstein says a three-way combination could work.
Microsoft, Yahoo and AOL are the three leaders in e-mail, a part of the industry in which customers tend to stay put as long as it doesn’t cost them much. So far, legions of loyal customers haven’t added up to much profit because nobody has figured out how to monetize e-mail. Adding a lot of pop-up ads seems effective only at driving away customers.
If e-mail’s Big Three became the Giant One, a possible route to profits would be more effectively tracking the movements of people who begin their Web surfing at their e-mail site, and using that data to target them for less obtrusive marketing pitches, Helfstein said. Such behavioral targeting is a developing arena for ad growth.
The question for AOL would be whether, even with that rationale, it could get an attractive enough price to satisfy Time Warner.
Some contrarians saw Friday’s announcement as an odd kind of plus for Google. Yes, it would have to face a bigger rival, but between now and the time the deal got done, Microsoft and Yahoo would be more preoccupied with putting the two companies together here and abroad than with their arch-competitor. While they had their eyes off the ball, the argument went, Google could grab still more market share.
Analyst Laura Martin of Soleil Securities in Los Angeles wasn’t buying that theory.
“There is nothing about a combined Microsoft-Yahoo that is good for Google,” she said flatly. Its market share is already so dominant in the paid search realm that small gains resulting from its competitors’ inattention are next to meaningless.
That doesn’t mean the merger couldn’t do some good for smaller Web-search rivals. Gartner’s Weiner said now might be a good time for search also-rans AOL and Ask.com to pitch their services as both the anti-Google and the provider that isn’t too distracted to get the job done.
thomas.mulligan@ latimes.com
