Microsoft and Yahoo’s Fitful Courtship Dance Finds a New Tune

Carol Bartz, the new CEO at Yahoo, and Steve Ballmer, Microsoft’s CEO, have reopened the communications lines that shut off some months ago when talks of a potential collaboration broke down, according to the Financial Times, citing a piece in The Wall Street Journal's tech blog

The FT reports that while talks between the two remain preliminary, the discussions could lead — at a minimum — to a testing-of-the-waters collaboration, such as a teaming up in Europe to offer enhanced search engine capabilities. That might make sense given that both companies have a relatively weak web presence in Europe, the FT notes.

Knowledge at Wharton recently wrote about Bartz’s need to set a strategic direction for Yahoo: “Carol Bartz's Challenge at Yahoo: Choose a Path, Build a Team and Do It Fast.” Wharton experts noted in the article that Bartz's biggest decision would be whether to outsource Yahoo's search service to Microsoft, which wants to take market share from Google.

Google accounted for 63.5% of search queries in December 2008, according to research firm comScore. Microsoft, which accounts for 8.3% of the more than $30 billion search market compared to Yahoo's 20.5%, has shown interest in buying Yahoo's search business, which generates revenue by linking ads to specific queries. Wharton experts suggested that outsourcing search functions to Microsoft could make sense for Yahoo – it could boost revenues, cut costs and provide needed focus. The move could also enable Yahoo to become a next-generation media company, said Kendall Whitehouse, senior director of IT at Wharton.

"Strategically, a Microsoft deal looks like a good move," Wharton management professor Lawrence Hrebiniak noted in the article, adding, "Ballmer wants to get this deal done and go against Google. Yahoo should take the money and find other opportunities," Wharton management professor Keith Weigelt agrees. "Yahoo is losing the battle with Google slowly. I'd seriously consider the Microsoft search deal as a way to focus the company."

Additional Reading:

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Steve Ballmer Speaks Passionately about Microsoft, Leadership … and Passion

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