Report: Microsoft Mulled Yahoo Acquisition to Defeat Google

A report published in "The Wall Street Journal" yesterday noted that Microsoft talked with Yahoo! sometime in the last year. The subject? A possible acquisition of Yahoo! by Microsoft. According to the report, the goal was to quickly improve Microsoft's position in the online services market against Google, the software giant's most bitter rival.

Although an acquisition that large would surely come under antitrust scrutiny, the seemingly abandoned scheme is notable for other reasons. Many people assumed Microsoft would continue backing its money-losing online services until they turned a profit; after all, some Microsoft products had languished in the market for years before taking off. Buying Yahoo! would have accelerated the company's efforts by combining Microsoft and Yahoo!'s best services.

Although the Microsoft/Yahoo! talks did go on for more than a year, they are apparently no longer taking place. "The Wall Street Journal" implies that when the Yahoo! talks stopped, Microsoft reorganized to take advantage of its own online services in the third quarter 2005.

Microsoft faces other pressures, in addition to the obvious competition from Google. Shareholders are outraged that the company's stock price has remained stagnant for several years, and Microsoft's most recent quarterly earnings warned that an additional $2 billion would be spent in the next fiscal year. Meanwhile, Google's stock price continues to hover at about $400 per share, almost 20 times the price of Microsoft's stock.

News of Microsoft's attempts to purchase Yahoo! came just months after reports that the company tried to combine MSN with Time Warner's AOL. Not coincidentally, that deal fell apart when Google paid $1 billion to purchase a 5 percent stake in AOL.

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