Google shrugs at possible rival deal

If the world needed another sign of Google Inc.'s dominance, it came Friday.

Software behemoth Microsoft Corp. was reported to be trying to buy the Web search engine's closest rival, Yahoo Inc.

Yet Google's stock barely budged -- not because Wall Street didn't believe the deal would come off, but because investors didn't think that a union of two such powerful Internet players would pose much of a threat to Google.

Microsoft and Yahoo have held on-again, off-again negotiations for years, and the new dialogue isn't any more intense than in the past, people familiar with the discussions said.

The New York Post reported Friday that Microsoft was urging Yahoo to enter into formal takeover discussions for a deal worth as much as $50 billion, while later reports said Yahoo was interested only in an alliance of online efforts. The companies declined to comment.

With both companies increasingly threatened by Google's power, investors bet that some sort of a deal would transpire this time with an offer that valued Yahoo at a premium. They sent the Sunnyvale, Calif., company's stock up as high as 17% before it closed up 10% at $30.98.

Google's investors, on the other hand, gave a collective shrug, and the company's shares fell by less than half of a percentage point. That's because even a combined Microsoft-Yahoo would lag behind Google in search-market share, advertising technology and consumer appeal.

The two companies together conducted one-third of all U.S. searches in March, compared with 54% for Google, according to research firm Nielsen/NetRatings.

"Instead of getting bigger, these companies need to think about getting smarter," said Scott Kessler, an Internet industry analyst with Standard & Poor's. "I don't think a partnership is necessarily going to achieve that goal."

Microsoft shares fell 1.3% to $30.56.

Many investors and analysts supported a partnership or full acquisition, saying that a united firm stood a better chance against Mountain View, Calif.-based Google in such areas as e-mail and applications for mobile devices.

"I wouldn't say it's going to change too much of the search marketplace," said Redondo Beach money manager Ryan Jacob, whose Jacob Internet Fund has stakes in both Yahoo and Google. "But there are other areas on the periphery that are interesting as well."