Microsoft, the world's largest software company, is reportedly in preliminary talks to buy online search company Yahoo!. And if the two companies do decide to merge, they could create an Internet advertising powerhouse that would rival industry leader Google. According to the reports, Microsoft is said to be considering an offer of as much as $50 billion for Yahoo. That would value Yahoo at about $36.75 a share. The stock was trading at around $32.75 following Friday's spike.
Microsoft has struggled to make inroads in the rapidly growing online advertising business. The company's MSN division ranks a distant third to Google and Yahoo in the online search market.
Last week, Microsoft reported in its latest quarterly earnings report that revenues at its online division grew only 10 percent, below the industry average, and that the unit posted an operating loss of $200 million.
To that end, one executive who works in the search business said that Microsoft does face a sense of urgency and that a deal for Yahoo would be the one thing that could finally make Google nervous.
"Google likes to be arrogant but if this deal happened, they would have to sit up and take notice. Microsoft hasn't shown much so far in online advertising but an acquisition of Yahoo would be a very good combination," said Samir Patel, founder and CEO of SearchForce, a privately held software firm that lets advertisers manage keyword purchases on Google, Yahoo and MSN. .
Yahoo has fared better than Microsoft but has also found it difficult to compete with Google. Yahoo recently upgraded its search technology platform in order to make keyword search results more relevant for advertisers and users.
Analysts had hoped that the new system, dubbed Project
Google, on the other hand, has continued to click, so to speak. The company posted first quarter results last month that far exceeded analysts' consensus estimates. What's more, Google announced in April that it was buying online ad placement firm DoubleClick for $3.1 billion, a deal that analysts think will bolster Google's prospects in the so-called branded advertising market, which include banners, videos and other online graphical ads. Google's purchase of online video sharing site YouTube last year also is seen as a way for Google to extend its market lead beyond search.
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