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
Professor David Nutt wants to change the way gravely ill patients are treated in Britain
people Why does a former Government tsar believe that mind-altering drugs have a place on prescription?
Norway’s ‘The Nordland Line – Minute by Minute, Season by Season’ continues the trend of slow TV
television The BBC have commissioned a series of programmes doing away with high-production values, commentary, script or drama
Arts and Entertainment
Jonny Evans has pleaded not guilty to an FA charge for spitting at Papiss Cisse
Life and Style
Kate Moss will make a cameo appearance in David Walliams' The Boy in the Dress
The image released by the Salvation Army, using 'The Dress'
Liverpool defender Kolo Toure
football Defender could make history in the FA Cup, but African Cup of Nations win means he's already content
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Relations Officer

£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Jemma Gent: Project Coordinator

£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable