Google triumphs as its rivals' courtship fizzles

The combined companies could have created a formidable challenger to Google Inc., but the Web search king helped scuttle the deal by complaining about the potential effect on competition and by tossing Yahoo a lifeline in the form of an advertising partnership.

Now Google not only gets to watch its two biggest competitors continue to struggle, it also is preparing to bulk up by nearing a deal to place ads on Yahoo's search engine, the Internet's second-biggest.

"Microsoft used to set the agenda for technology, period, and Google is setting the agenda now," Jupiter Research analyst David Card said.

People familiar with the talks said Google and Yahoo were negotiating their arrangement, which has already drawn scrutiny from antitrust regulators, in hopes of unveiling it within a week. But landing an ad partnership with Yahoo, which four years ago dumped Google to try its own hand at Web search, would give Mountain View, Calif.-based Google even more dominance: It already reaps three out of every four dollars spent on search ads in the U.S.

A distant-third-place Microsoft would be left scrabbling for mergers or partnerships with AOL and other second-tier players in the $26-billion online-advertising industry.

Small wonder then that Google lifted its voice from the pews to object to the MicroHoo marriage, and why its executives were happy when Microsoft withdrew its bid Saturday after failing to agree on a sale price.

Yahoo shares tumbled $4.30, or 15%, to $24.37, and Microsoft shares slipped 16 cents to $29.08. But Google rose $13.61, or 2.3%, to $594.90.

Jay Wong, a portfolio manager with Los Angeles-based Payden & Rygel, which owns Google shares, said the failure of the Microsoft-Yahoo deal solidified Google's spot as the top search engine and would allow the company to continue to grab market share from both Microsoft and Yahoo.

"Google can now go back to eating Yahoo's lunch uninterrupted," Wong said, adding that an advertising deal with Yahoo could lead to "bigger and better things for Google going forward."

When Redmond, Wash.-based Microsoft announced its unsolicited $44.6-billion bid to acquire Yahoo on Feb. 1, some analysts predicted that Google might actually benefit from the resulting distraction. Instead of focusing on customers and advertisers, they said, the Google competitors would have to spend too much time melding their disparate products, cultures and technologies.