Friday, February 8, 2008

Microsoft-Yahoo fussion may let Google grab mobile ads

Among the benefits Microsoft could get from acquiring Yahoo for $44.6 billion is a chance to compete in the emerging mobile advertising market. But while Microsoft struggles to take over Yahoo, both Microsoft and Yahoo could be distracted while Google becomes dominant in still another market.
While Microsoft Relevant Products/Services's $44.6 billion bid for Yahoo appears to be aimed at capturing a share of the rapidly growing online advertising market dominated by Google, some observers think the move would also position Microsoft in the emerging market for mobile advertising.
Robert Scoble, vice president of media development for and a former Microsoft blogger, wrote on his Scobelizer blog that the leveraged buyout will actually benefit Google by distracting both Microsoft and Yahoo from the mobile front.
"The real race today" Scoble wrote, "is for ownership of your mobile phone." He noted that six million cell-phone users are added every month in China. "So every month that Microsoft and Yahoo will be stuck in some courtroom arguing out why this is a good deal means money in the bank for Google as they close mobile-phone deal after mobile-phone deal," he said.

Huge Emerging Market

While mobile advertising was an emerging $106 million business in the U.S. and Europe in 2007, researchers such as Local Mobile Search predict it will balloon to $5 billion by 2012.
Even so, it's probably unlikely that mobile advertising was the driving force in Microsoft's interest in Yahoo, said Charles King, principal analyst with Pund-IT, in a telphone interview. "There's opportunity there, certainly, but the fly in the ointment is that mobile services are very much an emerging market," he said.
Yahoo is a strong player in the emerging market, though. In addition to making its many services such as e-mail and IM available on mobile devices, Yahoo owns a 40 percent stake in Chinese search company Alibaba and operates a strong division in Japan. "Those two markets are among the fastest-growing and most sophisticated in the world," King noted.

Time on Google's Side

While the mobile advertising market is still too young for any one company to be considered dominant, it will advance very quickly. "Anyone who wants to compete in that market needs to get to the front of the line," King said. "Time is a critical factor because of the speed at which the market is growing."
To some degree, Google's dominance in searches may spill over into the mobile space. "Google's mindshare in search is pretty remarkable. Once they tend to engage users in their service, it's really tough for competitors to dislodge them," King said. "If they can do with mobile advertising what they've done with search," Google may be quickly able to achieve dominance in mobile.
With European and U.S. regulators certain to give the deal intense scrutiny, whatever advantanges Microsoft and Yahoo gain from combining won't happen for several years. That gives Google a huge head start, King said. "Time is definitely on Google's side; they've proven they can move very quickly when they want to."

Cultural Conflict

Microsoft, on the other hand, "plays a good long game," King said. "The company is so successful commercially they can devote the time and effort and resources to enter a market -- even if it takes years to do so." While buying Yahoo would give Microsoft a "definite leg up," King said, it may not happen soon enough to block Google.
Besides the time for the acquisition to clear regulators, Microsoft faces large integration issues in swallowing the Silicon Valley icon. This deal, for example, is twice as large as HP's acquisition of Compaq in 2000. That acquisition, like the infamous merger of AOL and Time Warner, faltered mostly "on cultural issues," King said.
"Often you'll hear about immense technical benefits of an acquisition, but unless the cultural components are dealt with successfully, the acquiring company can wind up with a handful of ashes," King added.

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