Yahoo, Google test the search waters

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Yahoo, fighting off unsolicited advances from would-be acquirer Microsoft, made good on its promise to seek "strategic alternatives" by announcing Wednesday a test partnership with top search rival Google.

For a two-week period, about 3% of the searches made in the U.S. through Yahoo will show Google ads next to the results via Google's AdSense service.

In effect, Yahoo joins thousands of other Web sites using AdSense, though on a severely limited basis and for a short period of time. Nevertheless, the strategy is raising the ire of Microsoft, which issued a terse statement on the matter Wednesday.

"Any definitive agreement between Yahoo and Google would consolidate over 90% of the search advertising market in Google's hands," Microsoft said. "This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo."

Microsoft has offered somewhere between $41 billion and $45 billion for Yahoo, depending on the price of Microsoft stock on any given day, though Yahoo is seeking a larger bid from the software giant. Over the weekend, Microsoft gave Yahoo's board of directors a three-week ultimatum: sell or face a proxy battle and maybe even a lower bid.

Yahoo has maintained all along that it is seeking ways to boost its share price, even if it means alliances with former enemies or an outright sale of the company to any entity that might want to outbid Microsoft.

Microsoft seems to have at least one powerful ally in Sen. Herb Kohl, D-Wis.

"We will be following closely the results of the short-term test alliance between Yahoo and Google," Kohl said. "Should there be moves to make this agreement permanent, we will examine it closely in the antitrust subcommittee to ensure that it does not harm competition."

Investors, meanwhile, didn't seem to care about the Yahoo-Google partnership either way; Yahoo shares were up a mere 7 cents in regular trading to $27.77 and down 3 cents after hours.

Microsoft's bid for Yahoo was worth about $31 a share three months ago but is closer to $29 a share nowadays because of a slip in the price of Microsoft stock.
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