GOOGLE/YAHOO ALLIANCE LIKELY WOULD NOT PASS REGULATORY SCRUTINY

As Yahoo explores ways to avoid being taken over by Microsoft, partnering in some way with Google keeps coming up; however, any deal between market leader Google and number two Yahoo would be looked at very closely by the Justice Department.

From Reuters:

Yahoo Inc's attempt to form an alliance with Google Inc to stave off Microsoft Corp could run into more trouble with antitrust regulators than Microsoft's unwelcome takeover bid.

While Yahoo is seeking a business partnership with Google -- unlike the outright merger that Microsoft wants -- legal experts say any deal between the world's two largest Internet search services will draw heavy scrutiny from U.S. and European competition regulators.

"The Justice Department would certainly want to take a serious look at that because it would mean that a firm that would want to take advertisements or to place advertisements (online) would have only one place to go," said Aaron Edlin, who teaches law and economics at the University of California at Berkeley.

Google held a 59.2 percent share of the U.S. Web search market in February, compared with Yahoo's 21.6 percent and Microsoft's 9.6 percent, according to research firm comScore.

MICROSOFT BIDS $44.6 BILLION TO ACQUIRE YAHOO

Microsoft has offered $44.6 billion, or $31 per share, to acquire Yahoo. Yahoo's stock closed at $19.18 per share Thursday, so the offer is a premium of 62%. In pre-market trading Friday, Yahoo shares were trading at $29.06 at the time of this posting.

From The New York Times:

If consummated, the deal would redraw the competitive landscape of the Internet consumer services business, where both Microsoft and Yahoo have struggled to compete with Google.

Microsoft said the combination of the two companies would create efficiencies that would save approximately $1 billion annually. The software giant also said that it has an integration plan to include employees of both companies and intends to offer incentives to retain Yahoo employees.

Earlier this week, Yahoo said it would cut 1,000 jobs in an effort to refocus the company and reduce spending, and issued an outlook for 2008 that disappointed investors.

GOOGLE'S CONTINGENCY PLAN: TAKE ON FACEBOOK WITH ORKUT & A NEW STRATEGY

From The New York Times:

Google and some of the Web’s leading social networks are teaming up to take on the new kid on the block — Facebook.

On Thursday, an alliance of companies led by Google plans to begin introducing a common set of standards to allow software developers to write programs for Google’s social network, Orkut, as well as others, including LinkedIn, hi5, Friendster, Plaxo and Ning.

The strategy is aimed at one-upping Facebook, which last spring opened its service to outside developers. Since then, more than 5,000 small programs have been built to run on the Facebook site, and some have been adopted by millions of the site’s users. Most of those programs tap into connections among Facebook friends and spread themselves through those connections, as well as through a “news feed” that alerts Facebook users about what their friends are doing.

For Google, the effort could breathe new life into Orkut, which is popular in Brazil and other countries, but not in the United States.

Facebook’s success with its platform has proved that the combination of social data and news feeds is a powerful mechanism to help developers distribute their software. They are now seen as must-have functions for many Internet companies. Other social networks and Web companies, including MySpace and the instant messaging service Meebo.com, have announced plans to open their sites in similar ways.

MICROSOFT BUYS PIECE OF FACEBOOK

From USA Today:

Microsoft said Wednesday it would pay $240 million for a small slice of Facebook in a deal that values the red-hot social networking website at $15 billion.

In selling a 1.6% stake to the software giant, Facebook rebuffed a competing offer from search-engine giant Google. Google had no comment.

Microsoft also will sell ads on Facebook outside the USA, extending a marketing relationship that began last year. The deal, announced after several weeks of negotiations, is considered a coup for Microsoft as it slugs it out with Google for online ad sales. Facebook, founded in 2004, has more than 47 million users.

The hefty price paid by Microsoft validates the gambit by Facebook CEO Mark Zuckerberg to spurn a $1 billion takeover bid from Yahoo last year. In 2005, News Corp., parent of Fox News, paid $580 million to acquire Facebook rival MySpace.

Microsoft covets the data Facebook collects about its members' tastes and preferences. Microsoft wants to sell ads based on those preferences, ads that appear when Facebook members use Windows Live services, Windows Mobile smartphones — even its Xbox Live online-gaming service, says online search expert Kevin Lee, chairman of Did-it.com.

GOOGLE ACQUIRES DOUBLECLICK

From The New York Times:

Google agreed to its largest acquisition yesterday, reaching a deal to purchase DoubleClick, the online advertising company, from two private equity firms for $3.1 billion in cash, almost double what it paid for YouTube last year. And perhaps just as important, the deal kept DoubleClick from the hands of Microsoft.

For Google, the purchase is another step in its transformation from a search engine into an advertising powerhouse. DoubleClick, which is based in New York City, specializes in software for display advertising and has close relationships with Web publishers, advertisers and advertising agencies.

The sale of DoubleClick involved weeks of negotiation that included at one point Yahoo, AOL and, most prominently, Microsoft, which has been trying to position itself as an advertising rival to Google. Even though Microsoft has more cash on hand than Google, the company was ultimately outbid.

“Keeping Microsoft away from DoubleClick is worth billions to Google,” an analyst with RBC Capital Markets, Jordan Rohan, said. “Yet again, Microsoft is on the sidelines and away from the action.”

YAHOO TO REPORT EARNINGS TODAY

Yahoo will report fourth quarter earnings today and will likely give an update on the slow customer migration from its old keyword search advertising to the new "Panama" system, which works much more like Google's Adwords. Investors hope Panama will help Yahoo narrow the growing gap in online ad sales.

WSJ.com