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Microsoft-Yahoo Union Would Still Be No. 2
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Umesh Ramakrishnan, vice chairman of the executive search firm CT Partners, said Yahoo lost its way under then-chief executive Terry Semel, a former Hollywood executive who hoped to fashion Yahoo into an online media empire. It got into online music, developed its own news sites and hired journalists to travel the world.
"They became more of a large organization and were unable to close the gap with Google," Ramakrishnan said.
Semel stepped down as chief executive last summer and gave up his role as chairman of Yahoo's board Thursday night. This week, Yahoo announced that it would lay off 1,000 employees.
There are "fewer fates less appealing than being a part of Microsoft," said a former Yahoo executive who spoke on the condition of anonymity because of his professional dealings with both companies. Yahoo likes to think of itself as nimble and still able to compete with younger Silicon Valley innovators like YouTube, the former executive said.
If Yahoo is no longer independent, attention could turn to Time Warner's AOL, said Sanford C. Bernstein analyst Jeffrey Lindsay. AOL has been the periodic subject of takeover speculation, and the new Web company landscape might make AOL an attractive acquisition, he said.
"Initially it looks like AOL has been left out in the cold," he said. "But, longer term, it will probably be attractive to both" Google and a combined Microsoft-Yahoo.
Even though Yahoo and Microsoft could end up with a joint workforce of more than 90,000 employees and the corporate backing of one of technology's biggest titans, some analysts say that Google -- which is trying to close its own deal to buy advertising powerhouse DoubleClick -- is poised to become even more powerful.
"This isn't just about grabbing market share. It's about innovation," Saffo said. "Google has been innovating its way into the future. Can Yahoo be more innovative, as part of Microsoft with Microsoft resources? That's the real issue."
Others said the answer appears clear.
"Google is just so far ahead of the curve," said John Aiken, managing director and e-commerce analyst at Majestic Research, an investment research firm in New York. "At the end of the day, you can find what you're looking for on Google faster than anywhere else. And, at the end of the day, that's the only thing that matters."
