Yahoo Deal Would Boost Microsoft in Asia

The combined entity could make greater inroads in Asia than elsewhere because Google has a lower market share in this region than in the U.S., analysts note

Yahoo on Tuesday officially rejected Microsoft's US$44.6 billion offer last week to buy out the struggling Internet company. Microsoft responded immediately, vowing to continue its quest and bring its offer to Yahoo's shareholders.

In a statement Tuesday, the software giant said: "Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties". It further reiterated that it "reserves the right to pursue all necessary steps" to ensure Yahoo's shareholders are provided with the "opportunity to realize the value" of its proposal.

Some shareholders have since filed a lawsuit against Yahoo in a bid to force the company to reconsider Microsoft's bid.

Stronger ripples in Asia

If the takeover is successful, the impact of the combined entity will likely be greater in Asia because Google has a lower market share in this region, compared to other regions.

Yahoo would make a significant addition to Microsoft's portfolio because the software vendor currently has a relatively small chunk of the online search market in Asia, said Claus Mortensen, IDC's principal of emerging technology advisory services, digital marketplace and new media.

"Microsoft's MSN is still relatively small in Asia in terms of market share, but Yahoo is quite strong in key markets like China and Japan, where Google is still notably weak compared to its global footprint," said Mortensen.

David Mitchell, IT research senior vice president at Ovum, said: "The addition of Microsoft engineering capability into Yahoo should allow the combined entity to bring new products and services to market more quickly, something that Yahoo has notably struggled with."

Yahoo's online engineering capabilities will offer Microsoft the potential to bring new services to market, which will help the software giant compete against the efforts of archrival Google, Mitchell added.

Mortensen noted that while Microsoft is not necessarily in a better position as far as Web search goes, it has one big advantage--the ownership of the desktop via its Windows operating systems.

"If Microsoft is successful in its takeover of Yahoo, I'd expect to see a quick move toward a much closer integration of the desktop and the Web, both in terms of search and other online services such as e-mail, instant messaging and even office tools such as Word and Excel," he said.

Mortensen recalled that Microsoft tried to implement a closer integration between the desktop and the Web during the days of its Windows 98 operating system, but the strategy did not catch on with end-users. This, he added, was likely due to the fact that the idea was "a bit premature at the time and perhaps not implemented as well as it should have been".

To better compete, Google is likely to continue its push toward fully Web-based services to rival Microsoft's software portfolio, said Mortensen. "Google will most likely focus even more on mobile services in the near future, spearheaded by its 'Android' mobile platform," he noted.

According to Google, the mobile OS--first unveiled last year--will make it easier to surf the Web on specially designed mobile phones, expected to be available in the second half of this year.

An acquisition could also mean more competition in the online advertising space, said Mortensen. "But, Microsoft might follow a Yahoo acquisition with a concerted effort in growing awareness of online advertising tools in Asia--something that Asian advertising-based search engines could also benefit from," he said.

Asian-based search engines include Sohu and Baidu.

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