Ever since Microsoft Corp. (MSFT) withdrew its $33/share offer for Yahoo! Inc. (YHOO) in May 2008, the search company’s share price has been trending downward. Yahoo! is losing market share steadily, and a fair portion of the loss is going to Microsoft’s Bing search engine.
The most recent comScore (SCOR) report shows Microsoft’s share of the search market rose from 11.3% in January to 11.5% in February, while Yahoo!’s share fell from 17% to 16.8%. Google Inc. (GOOG) saw its share also rise slightly month-over-month, from 65.4% to 65.5%.
Yahoo! is basically shooting itself. It’s recent deal with Microsoft to outsource its search technology under a 10-year partnership was based on the strategy that new display ad technology would win back share from share from Google’s bare-bones advertising approach. At least one analyst believes that it is doubtful that Yahoo! “will deliver a product that is compelling enough” to topple Google.
That’s an understatement. Yahoo!’s revenue growth was just 3% in 2008 and its 2009 revenue loss came in at 10%. Negative revenue growth hardly gives one confidence that Yahoo! is moving in the right direction.
And even if Yahoo!’s revenues should rise, the deal with Microsoft will be viewed as a gain for Microsoft, not Yahoo!. Bing’s success at grabbing market share
One thing in Yahoo!’s favor in its deal with Microsoft is that Microsoft doing its best to rattle Google by encouraging regulatory challenges to Google’s dominance in the US and Europe. Microsoft’s case is certainly arguable, but it will take a long time to settle the argument, and there’s no guarantee that Microsoft will win.
Still, it looks like Microsoft and Yahoo! are just rearranging deck chairs on the Titanic aka Yahoo!. The search deal between the two gives Microsoft a lot of what it hoped to gain by acquiring Yahoo! outright, only without having to spend real cash getting it.
Getting outflanked by Microsoft is not unusual. The software giant just has too much cash and too much power to be successfully resisted when it really has a target in its sights. Yahoo! is learning that the hard way. First, Jerry Yang tried to hold out for more money from Microsoft and found out how well that worked. His replacement, Carol Bartz, has tried to position Yahoo! as a technology provider as well as a major ad site. That has worked, sort of, but at a high price.
There just doesn’t seem to be any way for Yahoo! to get its groove back. It is a de facto division of Microsoft now, and when the day comes, Microsoft will pick it up for far less than $33/share.
Related Articles:
Get the names of the best cheap stocks to rebuild your wealth in 2010. Each stock sells for less than $10 a share and is set to double in the next 12 months — download your FREE report here.
