Yahoo-Microsoft Merger Advised By CEOs Of Top Technology Industries

Microsoft-Yahoo deal would reshape the search engine marketing arena and pave the way for the formation of a very viable competitor to Google. The result will be the creation of a more credible alternative to an increasingly dominant player.

Microsoft has struggled to make inroads in the rapidly growing online advertising business. The company's MSN division ranks a distant third to Google and Yahoo in the online search market. But all this could change because if Microsoft and Yahoo merge, their market share in search would still trail Google's but not by a wide amount.

Yahoo’s rejection of the bid offer by Microsoft and its high expectations had disappointed many including some media magnates like Rupert Murdoch who said this week that he is "mystified" the two have not come to terms. He also said that given the original 62 percent premium Microsoft was willing to pay for Yahoo, Ballmer should be more patient.

Even the top executives of Microsoft and Yahoo shared the fact that no progress had been made on a merger. Although it makes more sense for Microsoft to target Yahoo instead of any other smaller online ad company and Yahoo would be better off hitching its wagon to Microsoft. According to the hi-tech CEOs, if Bill Gates and Terry Semel join forces, Google will have a tougher time dominating the online advertising business.

According to Barry Diller, who runs the company behind rival Ask.com (IACI.O), the merger between Microsoft and Yahoo is inevitable to take on Google in Web search and advertising market. Bobby Kotick, a Yahoo board member joked that he had tried to get the top executives from Microsoft and Yahoo together to play Guitar Hero 4, the hit video game from the company he runs, Activision Inc (ATVI.O).

With Yahoo's organic strength and MSN's higher quality paid search, combining the two should provide a much stronger product. If they can capitalize on the publicity the merger will create – build enough curiosity when they launch their new engine and deliver on the promise, then they stand a chance of creating momentum and capturing more search traffic. However, they will have to tread carefully to not lose the things that are already working in each system and to not turn off their existing loyal customer base.

After a three-month pursuit, Microsoft said on May 3 that it was abandoning its blockbuster bid to acquire Yahoo.

The collapse of the offer came after Steven A. Ballmer, Microsoft's chief executive, increased the company's bid to $33 a share, or a total of about $47.5 billion, from $29.40 a share. Yahoo's chief executive, Jerry Yang, reportedly told Mr. Ballmer that Yahoo would not accept an offer below $37 a share.