Microsoft Shoots Down Yahoo! Merger Rumors

In Las Vegas for the Goldman Sachs Internet Conference, Microsoft chief advertising strategist Yusuf Mehdi said his company can effectively compete with Google without purchasing Yahoo! Mehdi also said that Microsoft already has more users of its Web services than does Yahoo!, suggesting that a merger or purchase of the company, or a purchase of some of its assets, is unnecessary.

"From where we are today, I think we have all the pieces." Mehdi said, noting that the two companies will continue to work together in some ways even as they compete in others. For example, Microsoft and Yahoo ensure that their instant messaging systems interoperate, he said.

Microsoft and Yahoo! have discussed various ways of combining their Internet assets over time, up to and including Microsoft purchasing Yahoo! outright. Recently, reports of the two companies talking again resurfaced, and though these reports were later proven incorrect, the story has taken on a life of its own. Adding fuel to the fire, of course, is Microsoft's continued defeats in the online search and advertising markets. This is not a company that takes defeat well, and Microsoft isn't above purchasing its way into tough markets.

In lieu of a Yahoo! deal, Microsoft has made other moves to shore up its online properties against an ever-aggressive Google. After Google snagged DoubleClick out from under it for $3 billion, Microsoft purchased little-known aQuantive for double that amount. (Mehdi called the aQuantive deal a "game changer.") If Microsoft keeps making lopsided purchases like that, it won't have enough cash to purchase Yahoo! anyway, rendering the entire argument moot. Yahoo! is worth an estimated $40 billion to $50 billion, according to analysts.

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