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Microsoft and Yahoo: it’s all about the ad platform

Just got off the conference call. One thing that is clear is that this bid is primarily motivated by the desire to build a bigger advertising platform. Microsoft talked about Google’s 75% market share in search advertising and the implication is that Microsoft is worried that it may never be able to build its Live brand into a serious competitor.

Microsoft says the offer is worth 44.6 billion dollars, split 50% cash, 50% equity, representing a 62% premium on yesterday’s closing price for Yahoo shared. It would like to complete the deail in the second half of 2008.

Ray Ozzie talked about information portals, the pivotal role of search, and plans to transform search from its current “10 blue links”. He mentioned natural language search and social platforms. He also mentioned Yahoo’s developer platform and said that Microsoft would extend it.

In answer to a question about the future of the MSN and Live brands after a successful acquisition, Microsoft talked about “a thoughtful process” involving a joint leadership team – Microsoft and ex-Yahoo. Nobody asked about PHP vs Window server technology but I suspect the answer would have been the same.

My initial reaction: I can see the sense of it though I doubt integration would be easy. I do think there is a cultural divide between Microsoft and Yahoo that would not be easy to bridge, though it is easier to envisage now than it would have been a couple of years ago. Reason: a formidable common competitor, and work Microsoft has done on open source and cross-platform technologies, such as supporting PHP on IIS, and creating Silverlight.

Will Yahoo bite? Will it have a choice, given that Yahoo itself is struggling and doesn’t have Windows+Office business to fall back on?

Currently Yahoo says:

The Company said that its Board of Directors will evaluate this proposal carefully and promptly in the context of Yahoo!’s strategic plans and pursue the best course of action to maximize long-term value for shareholders.

Not much, but not an instant rejection.

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