Microsoft Bids $44.6 Billion To Buy Yahoo

By Peter Whoriskey and David Cho
Washington Post Staff Writers
Saturday, February 2, 2008

In a bid to halt Google's growing dominance online, Microsoft has offered to buy struggling Internet giant Yahoo for $44.6 billion, an acquisition that would unite the world's most influential software company with the Web's most-trafficked site.

If approved by Yahoo's shareholders and by regulators, Microsoft's unsolicited offer would set up a titanic corporate struggle between Microsoft and Google for the patronage of millions of Internet users around the world.

Microsoft sells the operating systems and Web browser used on the vast majority of the world's computers. It was once feared as a near-monopoly with unbounded power over personal computing. But the proposed deal tacitly acknowledges that the software giant has failed to reinvent itself as computing shifts more online; instead, it is trying to buy its way into a stronger position. The proposed acquisition would give Microsoft access to Yahoo's 137 million monthly visitors and long reach into the lives of consumers in the online realm. There it would confront Google, which through its preeminent search engine now captures the biggest share of online-advertising money. It is also branching out in many directions at once, into office software, mobile phones and, through its purchase of YouTube, entertainment.

"The market is increasingly dominated by one player," said Kevin R. Johnson, a Microsoft division president, referring to Google. "By combining assets of Microsoft and Yahoo, we can offer a more competitive choice for consumers, advertisers and publishers."

Yahoo said it would evaluate the offer "carefully and promptly in the context of Yahoo's strategic plans." Its representatives declined further comment.

A Google spokesman said it was premature to discuss the offer.

The proposed deal reflects the huge changes in how people use computers.

Increasingly, the machines owned by consumers -- desktops, laptops, mobile phones -- are valued less for their computing power than for their connections to online media.

Microsoft, a creation of the previous era, has struggled to adapt to the shift, though it recognizes its importance. In announcing its bid yesterday, Microsoft executives estimated that the online advertising market -- $40 billion in 2007 -- will double by 2010.

Matt Rosoff, an analyst at Directions on Microsoft, an independent research firm that focuses exclusively on the company, said he viewed the bid as a reflection on the company's previous attempts to go online with MSN and other services.

"I think that's a tacit admission of failure" in online services, Rosoff said. "They've poured a lot of money into it and tons of resources and they've basically said, 'Well, we can't do it on our own.' " Google, meanwhile, has excelled online, where it was born as a search engine designed by Stanford University graduate students.

Its lofty and oft-stated goal is to "organize the world's information," but its financial success comes from capturing as much as 40 percent of online ad sales, according to analysts. Much of Google's ad money comes from ads related to searches, in which companies pay for messages to be presented with the results for specified search terms.

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