28 Feb, 2008

Why Microsoft wants to lasso Yahoo

A lot of excitement has been sparked by what could be one of the biggest deals ever in the technological sector, if it finally goes ahead. Amid fierce resistance from Yahoo, Microsoft’s initial offer of $45bn already looks too low – and it may end up spending billions more. So why is the software giant so determined to get its hands on Yahoo? “This is an unprecedented move for Microsoft,” says Matt Rosoff, of the analysis group Directions on Microsoft. “It shows how desperate they are and how concerned they are about Google achieving a monopoly position in internet advertising. “It is also an acknowledgement that Microsoft’s in-house internet strategy hasn’t worked.” Internet savvy Microsoft’s current in-house strategy is based on its website MSN, which has not been as successful as the company hoped. Most experts think that Yahoo just “gets” the internet better than Microsoft, whose staff tend to have their roots in writing software code. That internet savvy from Yahoo might help Microsoft take on Google in a form of online advertising known as display. Display adverts appear as surfers look at popular websites. They are placed by established brands such as travel firms and represent a market where Microsoft and Yahoo are doing reasonably well. “If the two companies combine and manage to maintain their combined audience, they will clearly be number one in almost every single category,” says Mr Rosoff. The question now is whether their combined force is enough to achieve the kind of dominance in display advertising that Google has managed in the search-based market. Experts are predicting a huge growth in display advertising because of the increasingly sophisticated exploitation of user data. A technique known as behavioural targeting now allows companies to follow users around the internet by tracking the unique identity of every computer. “Essentially what behavioural targeting is doing is capturing people who are showing an interest in something, whether or not they choose to go to a search engine,” explains Geoff Ramsey from research group eMarketer. “So by watching my traffic, where I go, what search terms I use, they profile me.” So if your profile suggests that you are interested in travel, advertisers can now try to sell you a holiday – whatever website you happen to be looking at on the internet. Core business Exploiting user data could even solve a traditional advertising conundrum. “The holy grail for a lot of advertisers is to find a way of really only hitting the people who want to hear the message, and that’s something which the internet potentially gives advertisers tools to do,” says John Gapper of the Financial Times. To this end, Microsoft and Google are both splashing billions of dollars on those tools. They need to offer compelling content which attracts advertisers and generates data about users – hence Microsoft’s bid for Yahoo. They are also now competing for the expertise of specialist internet advertising companies delivering advertisements in more targeted ways.

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