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washingtonpost.com = > Technology=20

Microsoft-Yahoo Union Would Still Be No. 2

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Comments that include profanity or = personal attacks=20 or other inappropriate comments or material will be removed from = the site.=20 Additionally, entries that are unsigned or contain "signatures" by = someone=20 other than the actual author will be removed. Finally, we will = take steps=20 to block users who violate any of our posting standards, terms of = use or=20 privacy policies or any other policies governing this site. Please = review=20 the full=20 rules governing commentaries and discussions. You are fully=20 responsible for the content that you post.

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By Mike=20 Musgrove and Cecilia Kang

Washington Post Staff Writers =
Saturday,=20 February 2, 2008; Page D01

A combined Yahoo and Microsoft would still be the underdog in the = increasingly=20 important business of Web search if Microsoft's unsolicited $44.6 = billion bid to=20 buy Yahoo is approved by regulators and Yahoo shareholders.

In Web search, one of the key services that drive online advertising, = Yahoo=20 and Microsoft together have 33 percent of the U.S. search market -- a = distant=20 second to Google, which has 58 percent, according to ComScore, a research firm.

Both tried to combat their common rival in recent years by launching = efforts=20 to improve their search-engine technology. Both bought dozens of = companies to=20 try to bulk up their marketing presence and build their base of = advertisers and=20 publishers.

But both nevertheless kept losing ground, employees and advertising = growth to=20 Google.

In that sense, an acquisition of Yahoo "buys Microsoft an instant = beachhead=20 against Google," said tech forecaster Paul Saffo. But, he said, "it will = take=20 some very artful post-acquisition work to make the cultures mesh. That's = what=20 really gives me pause, and I'm not sure it can be done."

Yahoo is a Silicon Valley Internet pioneer, known for its whimsical = Super=20 Bowl ads and employee foosball competitions. At Yahoo's Sunnyvale, Calif., home, workers chatter between cubicles with gold = stars and=20 conference rooms named "chunky monkey."

Microsoft, based in Redmond, Wash., with nearly 80,000 employees, makes much = of its=20 money from business software and is known for a traditional corporate = regime.=20 Its hallways are typically silent, as protocol dictates that people work = behind=20 closed doors.

Many analysts said yesterday that they expected the surprise offer -- = a=20 cash-and-stock bid offering a 62 percent premium over Yahoo's closing = share=20 price Thursday of $19.18 a share -- to sail through. Some analysts also = said an=20 acquisition was an inevitable outcome resulting from some of Yahoo's = missteps.=20

"Yahoo was a pretty innovative company. Five years ago they were = leading=20 edge," said tech industry analyst Roger Kay, president of research firm = Endpoint=20 Technologies Associates. "But they haven't moved much, and the rest of = the world=20 has grown up around them."

Started by two Stanford PhD candidates as a hobby in 1994, Yahoo was = one of=20 the first Web companies to grasp the need for a guide to the vast amount = of=20 information becoming available on the Internet. The site got more than 1 = million=20 hits its first year, at a time when relatively few people were online. = The site=20 was first known as Jerry and David's Guide to the World Wide Web.

But after several years of growth -- and an accompanying boom in its = stock=20 price -- Yahoo missed a few major online breakthroughs, such as social=20 networking and video, and lost talented workers to rivals.

Microsoft yesterday confirmed that it approached Yahoo about an = acquisition=20 several times over the past year but was rebuffed by Yahoo's board of = directors.=20 Since October, Yahoo's shares have dropped 31 percent and its had an = executive=20 shakeup.

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