Microsoft Goes Hostile in Search Game

Takeover bid is an unusual move in the Internet world. Is Google too far ahead?

ByGIGI STONE

Feb. 2, 2008— -- It's the blockbuster takeover bid in the Internet world: Microsoft's $45 billion bid to buy Yahoo. Microsoft is known for being aggressive, but this is the first time it has atempted a hostile takeover.

"Yahoo had been rebuffing Microsoft's overtures for the past year," said Kara Swisher, co-editor of AllThingsD.com for The Wall Street Journal. "When they refused to go along with Microsoft -- Microsoft took it public and took it hostile."

It is a maneuver that is somewhat unusual in the Internet world, which is generally thought of as being more collegial than other industries.

"You don't tend to try to do a hostile takeover in the Internet space because people just leave," Swisher said. "So it's very unusual Microsoft is attacking Yahoo in this way."

The reason for the move is simple: Microsoft is desperate to battle Google's dominance in search and in ads.

"Consumers don't realize that many of the results that search engines display to them are paid for by advertisers," said Dan Solomon, the CEO of Vermillion, an Internet strategies company based in Washington. "Advertisers spend millions and millions of dollars."

Last year Google made around $16 billion in advertising revenue, while Yahoo made only around $6 billion.

"Microsoft and Yahoo have fallen a long way behind in the search game," Ad Age editor Jonah Bloom said. "With every passing month we've seen Google's shares increase."

Even the word Google is in the dictionary -- "verb. to search for information on the Internet." So when a brand name becomes part of the lexicon, like Coke or Kleenex it makes you wonder whether another company ever really compete. Is Microsoft just too late in the game?

"The fact that they're offering such a bounty for Yahoo and their willingness to take that course of action is rolling the dice," said Ken Auletta, author of "World War: Microsoft and Its Enemies." "They're like Tom Brady trying to throw a touchdown pass."

If the deal goes through, Microsoft will gain a great brand, hundreds of millions of users and a perception that they're in the game. But before any deal goes through involving these Internet giants, federal regulators will scrutinize it very closely.

ABC News Live

ABC News Live

24/7 coverage of breaking news and live events