MainStreet Explains the Yahoo, Microsoft, Google Brouhaha

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Are you befuddled by the headlines about Google (GOOG), Yahoo (YHOO ), and Microsoft (MCST)? Here’s a quick explanation from MainStreet:

WHAT IS AT STAKE
The three companies are embroiled in a battle for bigger slice of the online advertising pie. Currently, Google ads have 62% of the market, while Microsoft and Yahoo, if combined, would only have 27.2% of the market, according to TheStreet.com.

Google and Yahoo agreed June 12 to an ad partnership in which Google will deliver ads to search results on Yahoo. This deal came after Yahoo rejected a $1 billion offer from Microsoft.

WHO IS INVOLVED
Why all the fuss? Let’s look at the main players: Microsoft President Kevin Johnson, Yahoo Chief Executive Officer Jerry Yang and Yahoo Billionaire Investor Carl Ichan.

Yahoo Billionaire shareholder Carl Icahn (who owns 10 million shares) is trying to oust the Yahoo Board, because he stood to make a fortune had they accepted Microsoft's bid. Icahn reports that Yahoo CEO Yang and his officers sabotaged the deal with Microsoft by implementing a severance package that would cost Microsoft approximately $2. 4 billion.

Meanwhile Yang's take is that Yahoo turned down this mega offer because they believed that Microsoft undervalued Yahoo’s search business. The agreement with Microsoft would have required exclusivity for 10 years. The agreement with Google allows Yahoo to work with other groups.

Microsoft’s President, Kevin Johnson also regrets that the Microsoft/Yahoo deal has not yet materialized: "This partnership would have created a stronger competitor to Google, providing a greater choice and innovation for advertisers, publishers and consumers."


WHY IT MATTERS TO YOU

There won't necessarily be fewer ads online as a result of these dealings, but at least the ads you do see will be more relevant to your searches. (In other words if you are searching for information about organic dog food on Yahoo, future Yahoo results and ads will specifically focus on other organic pet food deals (and not on pet Halloween costumes).) According to Danny O. Snow, a senior fellow of the Society For New Communications Research (SNCR.ORG), “while a Google-Yahoo advertising collaboration raises some legitimate antitrust concerns, for the man on the street it could be a blessing in disguise.”

Snow believes that Google has demonstrated so much early success to end users because of their “uncanny accuracy of their search methodology compared to competitors.” Online advertising is necessity. The challenge with the merger is how Yahoo and Google will keep their ad targeting “unobtrusive and appropriate to the interests of the average user." And, Snow thinks partnering with Google is a pretty good start.

Keep tuned. Yahoo holds its annual shareholder meeting on August 1. It is unknown whether or not the discontented Carl Ichan will try to oust the majority of the Yahoo directors and launch a takeover.

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