Microsoft-Yahoo deal faces tough scrutiny

By Arun Kumar, IANS,

Washington: Microsoft and Yahoo’s blockbuster deal to form a 10-year partnership in Internet search and advertising is expected to face tough scrutiny with US authorities taking a hard look at consolidation in the hi-tech industry.

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Already, Congress has shown interest in the deal with Democrat Senator Herb Kohl, chairman of the Senate Judiciary Committee’s antitrust subcommittee, saying the partnership “warrants our careful scrutiny”.

In a statement, Kohl said members of the subcommittee are “concerned about competition issues in these markets because of the potentially far-reaching consequences for consumers and advertisers”.

Microsoft and Yahoo said they will submit their proposal for review by antitrust regulators and that they hope to gain approval by early 2010, arguing that competition concerns should be diminished from those about the merger attempted last year.

“The difference here is that this transaction is about paid search and algorithmic search,” said Brad Smith, Microsoft’s general counsel, was quoted as saying by the Washington Post.

“The companies will continue to compete aggressively in other things such as portals, e-mail, instant messaging and display advertising.”

The two companies also say it was the only way to form a credible competitor to the industry’s Goliath, Google, which holds 65 percent of the market for Internet search advertising.

“We actually think this is one of those cases where us coming together will provide more competition to the market leader, not less,” Microsoft chief executive Steve Ballmer said in a conference call.

Analysts cited by Computerworld said the new partnership could simply be the beginning of a long-term courtship that eventually leads to the merger of the two industry giants.

But if the companies don’t merge and the deal isn’t renewed, what happens to a Yahoo that has no up-to-date search technology is a big question, says Karsten Weide, an analyst at research firm IDC.

Suggesting that Yahoo has made one heck of a big mistake, Weide said: “I was never in love with this deal, and I think it’s a strategic mistake for Yahoo.”

Jim McGregor, an analyst at In-Stat, said that if a merger with Microsoft is the final result, the move won’t be such a bad one for Yahoo. But if a merger isn’t in the cards, Yahoo could be in a jam.

Ezra Gottheil, an analyst at Technology Business Research Inc., said Yahoo’s big mistake was not accepting Microsoft’s offer last year to buy the company for some $45 billion.

“The bad deal for Yahoo was turning down the insane first offer,” said Gottheil.

“Frankly, Yahoo wasn’t going to be around at the end of 10 years without it.”

(Arun Kumar can be contacted at [email protected])