Microsoft Wants to Gobble Up Yahoo

It’s been rumored for a long time, but this time it’s true. Microsoft has offered to buy troubled Yahoo for $44.6 billion.

“We have great respect for Yahoo!, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market,” said Steve Ballmer, CEO of Microsoft.

For several months Yahoo has been spinning in infinity in an identity crisis and Google has taken advantage of that situation becoming the undisputed leader of the industry. This week Yahoo reported that net income for its fourth quarter declined to $206 million, from $269 million a year earlier. It also announced plans to lay off about 1,000 staff.

The company has been losing market share to Google and warned earlier this week that it faced “headwinds” in 2008, forecasting revenue below Wall Street estimates.

Yahoo said the online advertising market is growing rapidly and expected to reach nearly $80 billion by 2010 from over $40 billion in 2007. Yahoo added it is “increasingly dominated by one player,” referring to Web search leader Google.

The unexpected announcement comes as Microsoft, the world’s biggest software company, seeks new ways to compete more effectively against the search and online advertising powerhouse Google Inc.

Under terms of the proposed deal, Yahoo shareholders could choose to receive cash or Microsoft common shares, with the total purchase consisting of 50 percent each cash and stock.

In my opinion, this acquisition will not hurt Google’s goal to control the Internet. Their general strategy has been carefully laid out and its lead is so great, that Yahoo will only be a tremendous weight for Microsoft, who is desperately trying to understand how cloud computing works. Both Google and Yahoo are Internet-born companies. Microsoft is deeply embedded in the desktop world and does not fully understand the forces underlying online applications.

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