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.

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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."

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.

"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.

So, as online advertising reshapes the internet industry, Microsoft is trying to build an empire that can compete for domination with Google. But there may be a compatibility problem between Microsoft and Yahoo. The two companies are very different and if Microsoft gets distracted by the details of the merger, Google might seize the chance to streak ahead.


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