Fight over Yahoo would limit online choices

Times Staff Writer

The increased jockeying for Yahoo Inc. complicates the Web portal’s takeover fight with Microsoft Corp. But it also simplifies the bigger picture: The five largest draws for the Internet audience are now virtually certain to shrink to four -- maybe even three.

The latest sign of the Web industry’s maturation, Microsoft’s unsolicited bid for Yahoo, is likely to result in less choice for advertisers and reduce competition for e-mail, Web search and other online services, analysts and consumer advocates said Thursday.

“I assume we’re going to be losing at least one search engine,” said Leslie Harris, president of the nonprofit Center for Democracy and Technology. “We’re going to have a lot of power consolidated in a lot fewer places.”

Although Yahoo wants to remain independent, Microsoft’s overtures have forced it to seek a merger with Time Warner Inc.'s AOL and a search-advertising deal with Google Inc. The Sunnyvale, Calif., company is seeking alternatives for investors.


Similar logic is fueling the deal-making ambitions of AOL, Rupert Murdoch’s News Corp. and Microsoft, executives said Thursday.

Time Warner is trying to find a buyer for AOL. And News Corp. hopes to get a partner for its MySpace social networking site out of Yahoo’s predicament: The media giant is talking with Yahoo about helping it avoid Microsoft, and with Microsoft about helping it swallow Yahoo, according to people familiar with the talks.

All the maneuvering shows how the Web, in its second decade, is growing increasingly susceptible to the same forces that shrink the leadership of other industries.

“You get too many players selling too many wares, and they compete on price and you end up consolidating,” Sanford C. Bernstein analyst Charles Di Bona said. “So much for the Internet being completely different from everything else.”

The prospect of diminished competition is raising concern on Capitol Hill, where the top members of both parties on the House Judiciary Committee pledged more hearings on competition in online advertising.

Investors and analysts said the most likely scenario remained Microsoft winning Yahoo, with the Internet giant’s deal talks probably forcing Microsoft to raise its price. Microsoft’s cash and stock offer was worth about $42 billion Thursday, when its shares rose 22 cents to $29.11 and Yahoo shares jumped 82 cents to $28.59.

Yahoo’s largest investor, Capital Research & Management, is betting that the increased attention results in a higher stock price. The Los Angeles-based firm expanded its Yahoo stake to 10.1% as of March 31, according to a regulatory filing Thursday.

The blur of new arrivals at the ball is encouraging a range of what-if scenarios.


Yahoo is in talks to absorb AOL, with parent Time Warner taking a stake in Yahoo of about 18%, according to people familiar with the talks. Yahoo then wants to outsource much of its search-based advertising to Google to boost profit.

But because that would leave the well-moneyed Microsoft with significant heartache, many expect the world’s largest software company to offer more -- with or without help from News Corp.

For Microsoft, investing heavily to develop a contender in Internet search was Plan A, and that didn’t work, one major shareholder said. Buying Yahoo was Plan B, he said, and there is no Plan C.

If Microsoft is left out at the end, it might try to deal just with News Corp., analysts said.


“MySpace adds a far more interesting story,” said media analyst Richard Greenfield of Pali Research. “Microsoft-Yahoo has the same problem as AOL-Yahoo: They don’t have anything that is driving consumer usage that is new.”

Though the portals are aging, such social sites as MySpace and Facebook aren’t large enough to give advertisers all they need.

The scramble for a prom date is an unexpected boon to Time Warner, which has grappled with what to do about AOL for years. Analysts said the company now has a window of opportunity in which AOL looks more attractive to other players than it has in a long while.

If Microsoft does get Yahoo, AOL is expected to turn to whoever is left: Google or News Corp.