Microsoft, Yahoo alliance would target Google

About a year after Microsoft Corp.'s hostile, contentious and unsuccessful bid to buy Yahoo Inc., the two companies appear set to join forces to take on a common rival – Google Inc.

The Wall Street Journal reported tonight that Microsoft and Yahoo are hours away from announcing a search and online advertising deal. According to Kara Swisher, a blogger for The Wall Street Journal, negotiations have been successfully wrapped up on a deal that is expected to have Microsoft's search technology used on Yahoo sites.

This new Microsoft-Yahoo partnership could give the two companies some much-needed leverage in their ongoing – and until now, separate – battles to chip away at Google's stranglehold on the search market. With Carol Bartz still new at the helm of Yahoo and focused on making the once-online-pioneer hip and fresh again, and Microsoft's Bing search service only a few months old, neither company has been able to make a noticeable dent in Google's well-polished, and well-funded, armor.

So a strategy that has them pooling their resources and industry might makes a lot of sense, says Dan Olds, an analyst at The Gabriel Consulting Group.

“Both Microsoft and Yahoo need this deal if they harbor any hopes of getting back into the lucrative search game,” said Olds. “Search has become the most reliable way of capturing eyeballs on the Internet and having a popular search engine is the basis for all of Google's success. Both Microsoft and Yahoo have invested billions of dollars in trying to build search and content portals that would be able to command Google-like ad revenues. But both have failed to blunt Google's revenue growth individually. Together they might have a better chance.”

Both companies have also been making separate moves in recent months.

In June, Microsoft unveiled its new search engine, an update to its far-from-beloved Microsoft Live Search. And with Microsoft's advertising power and a lot of media attention behind it, Bing has shown strong numbers just out of the gate. Early this month, Web analytics firm StatCounter reported that Bing may have nibbled away at Google's commanding lead in the search arena, but it definitely hasn't taken a big bite. While Google Inc.'s share dipped from 79.07% to 78.48% in June, Microsoft's search site share grew from 7.21% to 8.23%.

Yahoo is hanging in at a distant second place to Google with 11.04% of the market.

StatCounter CEO Aodhan Cullen described Bing's progress in the market as “steady, if not spectacular.”

And on its own front, Yahoo last week unveiled the beta of a newly overhauled homepage, whose promised features include the ability to integrate with social networking sites like Facebook, Twitter and Myspace. The changes are an apparent attempt to recapture some of the hip cache the site had during its heyday.

The problem for Microsoft and Yahoo is that despite their efforts, Google still looms far ahead of both. Olds, however, said they have a much better shot at their shared opponent if they work it together.

“Separately, they have small fractions of Google's viewership, but together, with a well executed plan and solid cooperation, they have a shot of at least giving Google a run for its money,” he added. “Google needs to take this seriously, which I think they will. Microsoft and Yahoo have a lot of resources to throw at this and they now have a partnership and a plan.”