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In Heavyweight Battle, Trying to Avoid a Knockout

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By Peter Whoriskey
Washington Post Staff Writer
Tuesday, February 5, 2008

On its own, Yahoo is a stumbling Internet giant.

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But to Microsoft and Google, two of the world's most powerful technology companies, control of Yahoo has come to represent an unmatched strategic prize. With its vast reach, Yahoo offers a combination of a strong foothold in online display advertising and an audience of 137 million monthly visitors to its sites.

Now the duel over Yahoo, initiated by Microsoft's surprise $44.6 billion offer last week, has set off a policy and public-relations battle between the corporate rivals that revolves around a simple question: Which company, Google or Microsoft, most threatens to become an Internet monopoly?

Both companies dominate some areas. Google, with its preeminent search engine, controls the way most people find Internet information. Microsoft, through its Windows PC software empire, dominates the way most people interact with their computers -- and the addition of Yahoo would hand it the world's most trafficked site.

Which company poses the bigger potential threat is a question that could divide the regulators, consumer advocates and privacy watchdogs who are weighing the effects of the proposed purchase.

In response to the proposal, the House Judiciary Committee has announced that it will hold a hearing Friday on Internet competition, with a focus on the deal.

In a joint statement, Judiciary Committee Chairman John Conyers Jr. (D-Mich.) and ranking Republican Lamar Smith (Tex.) said "Microsoft's bid . . . is certainly one of the largest technology buyouts we've seen and presents important issues regarding the competitive landscape of the Internet."

The committee will consider whether Microsoft's proposed acquisition "works to further or undermine the fundamental principles of a competitive Internet."

Before any Yahoo-Microsoft deal can be consummated, it must be accepted by Yahoo's board. The company said it was sorting through a number of inquiries from other companies interested in possibly purchasing Yahoo at a higher price. Google, hoping to fend off the Microsoft offer, has reportedly signaled that it could form a business alliance with Yahoo.

Exactly what sort of deal Google might offer remained unclear yesterday. A source familiar with the Microsoft-Yahoo deal said that although Yahoo had other interested parties none had made a concrete offer. AT&T, Comcast, Time Warner and News Corp. were considered by Wall Street as possible bidders. The source, who spoke on condition of anonymity because the talks weree ongoing, called the prospect of a Google counteroffer unlikely because of "regulatory issues that are complete showstoppers."

Spokesmen at Time Warner and Comcast declined to comment, although someone close to Comcast said it had made no offer for Yahoo.

"Yahoo's Board is carefully and thoroughly evaluating the Microsoft proposal in the context of all of the company's strategic alternatives," Yahoo said in a statement yesterday.


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