Microsoft, Facebook, Yahoo!: perfect ingredients?

20 May 2008

Social networking site Facebook may prove the perfect councillor in the on-again, off-again relationship between Microsoft and Yahoo!.

Microsoft said over the weekend that since withdrawing its proposal to acquire Yahoo!, it is now “continuing to explore and pursue its alternatives to improve and expand its online services and advertising business.”

While Facebook has not been talking, rumours are circulating amongst Silicon Valley technorati that not only will a Microsoft/Yahoo! search deal go ahead very soon, but that this will also be tied in with Facebook, which Microsoft has a 1.6pc stake in, worth US$240m.

John Furrier, promiment blogger and founder of the PodTech Network, said on his Twitter page that he reckons Microsoft will buy Facebook but only with Yahoo!’s search business to monetise it. This will put Google in check and everyone in Facebook “cashes out”, he said.

Microsoft’s official line on talks with Yahoo! reflects a move to buy part but not all of Yahoo!’s services: “[Microsoft] has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo!

“Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative, depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties.”

UK analyst firm Ovum sees this as a move from outright marriage to cohabitation: “First was the news that a potential shotgun wedding could be on the cards, even its lowest offer – never mind the final one.

“While it is not clear what the (latest) suggestion is, it is likely to involve a relationship or partnership around search-related advertising, in a similar style to the ‘poison pill’-type deal Yahoo! was suggesting with Google.

“There are several possible options, from a simple licensing deal at one end of the spectrum, through to a joint venture. Given the difficulties in pursuing an acquisition, it would be reasonable to assume that a low-integration option in any revised transaction is likely.”

Meanwhile, Robert Scoble, former Microsoft evangelist and Silicon Valley blogger, thinks that if Microsoft buys Yahoo!’s search division it will slot in neatly with Facebook and shut out Google in the process.

“Let’s say Microsoft gets Yahoo!’s search. That doesn’t look that brilliant. After all, we know Google is gaining share there and taking Yahoo’s best advertisers (and let’s just forget Microsoft’s efforts, which have been an utter failure so far).

“But these two moves would change everything and totally explain why Facebook is working overtime to keep Google from importing anything.

“Now. Microsoft/Yahoo! search will have access to huge swaths of internet info that Google will not have access to,” he added.

When could we see the gears turning for this kind of partnership? Furrier predicts the announcement of a Yahoo!/Microsoft deal as soon as this coming Thursday or Friday.

By Marie Boran