Trends of The Day

Remember this piece of news, not so long ago?

Microsoft wants to buy Yahoo in what analysts regard as a response to the seemingly unstoppable rise of Google. The emergence of Google has been staggering for observers and threatening for established players in every market it has entered. Microsoft’s response could level the playing field.

“This consolidates the marketplace down to Google versus Microsoft,” says Colin Gillis, analyst at stockbroker Canaccord Adams.

Now that the Microsoft-Yahoo deal feel through, Google has made a strategic partnership with Yahoo.

Under the (licensing) agreement, Google ads will appear alongside some Yahoo search results in the US and Canada. Yahoo said the agreement with Google could be worth up to $800m in additional revenue every year.

“By outsourcing to Google it could literally double the size of its paid advertising business,” says Sanford Bernstein analyst Jeff Lindsay. Advertisers will now be able to target the Yahoo search network as well, opening up cheaper ad properties and new profit opportunities.

The pair are thought to be ready to propose an exchange, where advertisers can choose whether to buy Yahoo!’s sponsored search results via Google or Yahoo!’s booking system. Lindsay…calculated a deal with Google could raise Yahoo!’s stock price as high as $37, the number Microsoft is understood to have flinched at in takeover talks abandoned at the weekend.

The result would be a massive injection of cash which institutional investors would like to see ploughed into a share buyback.

This is another slap in Microsoft’s face. Analysts say Gates’ main purpose in buying Yahoo was to stall Google’s voracious growth. Google, in response, just grew more.

The deal stabilizes Yahoo–for now. In the long run, Yahoo and Microsoft, whose online futures look unstable in light of Google’s massive popularity, need to find ways to draw in enough visitors to maintain viable presences.

The Feds are another wild card. The deal combines the salesforces of the nation’s two biggest search companies, and the US Department of Justice has taken notice.

According to the Silicon Alley Insider, Yahoo handing over some of search to Google is…(a hard deal to pass) through the Department of Justice. And the more that Google and Yahoo try to construct a partnership that will pass regulatory muster, the less attractive the deal will look to Yahoo shareholders.

In other words, there are still some variables before Microsoft officially has reason to shake in its boots.