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Tuesday, April 14, 2009

Microsoft, Yahoo Ponder a Display-Advertising Deal

Microsoft CEO Steve Ballmer and Yahoo CEO Carol Bartz are reportedly discussing still another deal on search advertising. Yahoo might take over Microsoft's display advertising. Microsoft and Yahoo are looking for ways to take on search-ad king Google. An analyst thinks Microsoft is after Yahoo's much larger market reach.

In the deal that refuses to die, Microsoft Relevant Products/Services and Yahoo are reportedly in talks once again about joining forces in search advertising.

This time, it's not a merger or a Microsoft acquisition of Yahoo's search assets. Rather, Yahoo might take over Microsoft's display-advertising business, according to a report in The Wall Street Journal. Yahoo's stock rose 6.5 percent in early trading on the news.

According to the Journal, Microsoft CEO Steve Ballmer and Yahoo CEO Carol Bartz have discussed what a potential partnership might look like. A variety of ideas are being explored, but a full acquisition of Yahoo is reportedly not on the table.

"We have to take all these rumors with a grain of salt. We've heard all of this before. What's different this time is the personnel change at the top of Yahoo. That makes it possible for the two companies to talk and consider how they might work together in a less emotional way," said Greg Sterling, principal analyst at Sterling Market Intelligence. "In a way, it would be irresponsible for Carol Bartz not to have a conversation with Microsoft."

Targeting King Google

Yahoo is the leader in display advertising, and the Journal reports Microsoft may turn over some of its display-advertising operations to Yahoo as part of a larger collaboration that includes the overall search-advertising market.

It appears that the companies are looking for ways to leverage their combined strengths against rival Google. Microsoft has a small percentage of the search- and display-advertising markets, but has resources to use in a Google battle. Yahoo has seen a slight uptick in its market share and offers Microsoft the ability to reach a broader audience.

"It would make sense for Yahoo and Microsoft to form sort of a partnership because they are the number-two and number-three players in search advertising," Sterling said. "The issue is going to be how much of its search assets Yahoo is willing to give up to Microsoft. What Microsoft really wants is the reach that Yahoo can provide. Marketers are generally happy with the performance of [Microsoft] adCenter. The issue is the lack of volume that Microsoft offers comparatively."

By Jennifer LeClaire

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