Plans for Microsoft and Yahoo to take on Google

Alliance would open up internet search market

Yahoo executives are to be questioned today on reports that they may be ready to set aside their differences with Microsoft and make an alliance against a common enemy: Google.

While Google continues to dominate the internet search market – and harvest the majority of the revenues from ads placed alongside search results – a new chief executive at Yahoo and a new search engine from Microsoft, the well-received Bing, have changed the dynamics of the negotiations between the two companies.

The two sides are in the final stages of talks about a deal that could see Microsoft take over the running of Yahoo's search-based advertising business, in return for guaranteed payments to Yahoo. The shape of the deal is still unclear, however, and analysts are nervous that the negotiations could still break down.

Yahoo's second-quarter financial results are due after the close of trading today, and Microsoft reports its latest figures on Thursday, giving an opportunity for investors to question executives at both companies – even if a deal is not sealed in time to be announced.

Youssef Squali, an analyst at Jefferies & Co, is recommending investors buy Yahoo shares, even though current results will be muted by the advertising recession. He raised his price target on the shares by 5 per cent yesterday, citing, among other things, the potential for profits from the Microsoft alliance. Todd Lowenstein, a fund manager at HighMark Capital, said: "The sooner these two decide to bring the best of what they both have together and then jointly go after the market, the more it will benefit both."

In rancorous, on-again-off-again talks over the course of almost 18 months, Microsoft repeatedly tried to buy Yahoo, finally offering $46bn for the company last year, only to be turned down by its founder and then-chief executive Jerry Yang. A later attempt to tie up an advertising alliance also collapsed, as Yahoo agreed to outsource its search-based advertising business to Google, only to find that deal scuppered over competition concerns.

Carol Bartz, who took over as Yahoo's chief executive in January, has signalled she is more open to a Microsoft alliance and has met on several occasions with Steve Ballmer, her opposite number at Microsoft. Last week, several senior Microsoft executives are understood to have flown to Silicon Valley to meet Yahoo counterparts to try to hammer out a deal.

The launch of Bing by Microsoft has helped it claw a little market share away from Yahoo. According to ComScore, Microsoft's share of search queries rose to 8.4 per cent in June from 8 per cent the previous month, while Yahoo fell to 19.6 per cent. Sixty-five per cent of search queries go through Google.

The activist investor Carl Icahn, who bought into Yahoo last year to agitate for a sale to Microsoft, is putting on more pressure for an alliance. "I've been a strong advocate of getting a search deal done with Microsoft," he said. "It would enhance value if a deal got done, because of the synergies involved."

Yahoo shares are half the value of Microsoft's takeover offer. Microsoft is expected to report the first annual sales dip as a public company on Thursday, but the signs of a tie-up with Yahoo and a strong pipeline of new products have pushed its shares up 63 per cent since early March. It has begun trailing the launch of a Windows 7 operating system, and has a new version of its Office applications suite in the works.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Written protest: Julia Donaldson, author of The Gruffalo, has sent an open letter to the Culture Secretary
books
Arts and Entertainment
The teaser trailer has provoked more questions than answers
filmBut what is Bond's 'secret' that Moneypenny is talking about?
Sport
Lewis Hamilton secured his second straight pole of the season
f1Vettel beats Rosberg into third after thunderstorm delays qualifying
ebooks
ebooksA special investigation by Andy McSmith
News
Johnny Depp is perhaps best known for his role as Jack Sparrow in Pirates of the Caribbean
peopleBut how did he break it?
Sport
footballDoes Hodgson's England team have an identity yet?
Travel
travel Dreamland Margate, Britain’s oldest amusement park, is set to reopen
News
news
News
Founders James Brown and Tim Southwell with a mock-up of the first ever ‘Loaded’ magazine in 1994
media
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss