Microsoft's Yahoo bid aims at Web

Acknowledging it can't beat Internet juggernaut Google Inc. on its own, Microsoft Corp. on Friday lashed its online fortunes to another Web also-ran with an unsolicited $44.6-billion bid for Yahoo Inc.

Microsoft and Yahoo, two of the world's most powerful technology companies, have each spent billions of dollars over the last half-decade trying to catch up to Google in the lucrative search-engine advertising business but still find themselves as far behind as ever.

When Yahoo's stock plunged to a four-year low this week, Microsoft pounced. It had been rebuffed by Yahoo before, but Friday's $31-a-share offer amounted to 62% more than the company's market value, and this time Microsoft publicly announced its intentions. Yahoo said it would consider the offer.

If Yahoo shareholders say yes and the deal survives the heavy scrutiny expected from U.S. and European regulators, it would represent the largest merger of two technology companies to date. The pact would combine the world's top software maker with an Internet titan struggling to find its way.

A merger would probably yield few major changes for Web users, analysts said, but could keep Google's growing sway over the $40-billion online advertising market in check by creating a powerful alternative for marketers.

"With the combined reach of these two properties, you've got a really tantalizing prospect for the online advertising community," said Ian Schafer, chief executive of online marketing agency Deep Focus.

Google would continue to dominate Web search, where Nielsen Online said it had 56% of the market. But Microsoft and Yahoo would control the majority of online banners and other display ads, plus compete well with Google in the developing markets for video and mobile ads, analysts said.

"The combined entity would be visited by 86% of U.S. Internet users, account for 15% of all time spent online, and represent 59% of online display ad impressions," Nielsen Vice President Ken Cassar said.

Integrating the two companies, however, could be a huge challenge.

Microsoft, based in Redmond, Wash., makes the operating systems that run more than 90% of the planet's personal computers. It's awash in cash but loses money in its online ventures as it invests heavily in its search engine and ad-delivery technologies.