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Will AOL Buy Yahoo or Just Partner Up?
Will AOL Buy Yahoo or Just Partner Up?

By Jennifer LeClaire
September 16, 2011 10:48AM

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"One can look at this as a bold, aggressive move tinged with a sense of urgency. Google presently commands a nearly two-thirds -- 65.5 percent -- market share in the search-engine arena, according to the latest statistics from comScore," said analyst Laura DiDio of the possible partnership between Yahoo, AOL and Microsoft on display advertising.

What is the future of Yahoo? How about AOL? Where does Microsoft fit into the picture? There seem to be more questions than answers these days -- and more rumors than facts.

One rumor insists either AOL or Microsoft will acquire Yahoo. AOL was named as a potential suitor before just-fired Yahoo CEO Carol Bartz came on board two years ago. And Microsoft was pressing hard to scoop up Yahoo's search assets. But some analysts don't see Redmond making another run for its search partner.

"Given what happened last time Microsoft is unlikely to bid for Yahoo. The bidding for Yahoo took down Microsoft stock 10 to 15 percent and it never recovered," said Rob Enderle, principal analyst at Enderle Group. "And Yahoo left Microsoft standing at the altar. It was horribly embarrassing for the executive team."

A Four-Way Battle

The other rumor floating around concerns Microsoft, Yahoo and AOL joining forces to compete against Google on the display advertising front. This is more likely, but none of the companies -- even Google -- are talking. Microsoft, though, is dropping hints.

"We believe that choice, openness and competition help drive innovation in the market," Microsoft said in a public statement. "As such, we are always looking for ways to partner with others in the digital advertising ecosystem to offer innovative solutions that benefit advertisers and publishers. However we have nothing specific to share at this time."

Laura DiDio, principal analyst at ITIC, noted how this group of vendors is competing against one another in a variety of markets -- and the competition is getting fiercer with each passing day.

Google is attempting to chip away at Microsoft's dominance in software and applications with things like Gmail and Google Apps. Apple and Google are competing in the smartphone and tablet markets. Apple and Microsoft have a 40-year old rivalry that continues unabated to this day, she said.

"These are the giant behemoths of the industry and they will fight each other tooth and nail with every weapon in their arsenal: alliances, purchasing patents, marketing, legal action, etcetera, to increase revenue and gain market share," DiDio said. "All of them are straying into each other's territory. Conflict is not just inevitable, it's assured!"

The Search Trio's Chances

As DiDio sees it, the partnership among Microsoft, Yahoo and AOL can best be summed up as three underdogs in search engine/online advertising space banding together to try and take down a common enemy: Google.

"One can look at this as a bold, aggressive move tinged with a sense of urgency. Google presently commands a nearly two-thirds -- 65.5 percent -- market share in the search-engine arena, according to the latest statistics from comScore," DiDio said.

Google's commanding lead empowers the company to sell more online ads, capture more revenue and therefore further strengthen its position even further, DiDio said. That's why an alliance to sell display ads makes a lot of sense and represents the best chance the three have to go on the offensive against Google.

"The alternative is to do nothing and watch Google continue to run away with the coveted prize of online advertising revenue, which will also fuel Google's ability to compete and win in other market segments," DiDio said. "It now remains to be seen whether the Microsoft, Yahoo, AOL triumvirate can successfully blunt Google's momentum and steal business."

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