Yahoo's board of directors says it is looking over a $44 billion bid from Microsoft to buy the company. Microsoft has been quietly trying to acquire Yahoo for at least a year in its attempt to become a more formidable challenger to Google. But even a combined Microsoft-Yahoo will have a hard time overtaking the nation's dominant search engine.
When it comes to search and the ad revenue related to it, Google is No. 1, hands down.
"Google has become a verb," notes David Smith, an analyst with the research company Gartner. "People think they're going to go Google something, and it's become just basically part of the lexicon of the way people talk and act today."
Google now has around 60 percent of the search market, and its share is growing. Yahoo is a distant second, with about 16 percent. Smith says Microsoft can't seem to win much more than 4 percent of that market, so the company is buying it.
"They had to make a big change and make a big investment and basically buy a large amount of market share," Smith says.
A combined Yahoo and Microsoft will indeed be bigger in size, and their combined resources are likely to make them a more formidable foe to Google. But Professor Jeff Jarvis of the City University of New York, who follows new media, thinks Google is going to keep on taking market share away from Microsoft and Yahoo. He says that's because Google puts its ads up wherever users go, whereas Yahoo is still set up like an old-time Web portal: Users must go to it.
"Google is built for trying to make sense of the entire world, whereas Yahoo is built in trying to get us to come to it and see what it wants to show us, like an old-media company," Jarvis says.
But the habits of Internet users change fast. In recent years, they've have been drifting from one site to the next. Analyst Rob Enderle thinks that's changing: He says users are once again going to Web sites and sticking around.
"Be it Amazon for shopping or Facebook for social networking, people go into that and they kind of stay in that environment," Enderle says. "So it looks like the market has stepped back a little bit from the Google phase."
Microsoft has already purchased an interest in Facebook. Yahoo remains the most popular Web portal and owns the trendy photo site Flickr. Still, Yahoo is struggling and about to make layoffs. And Microsoft's search engine has just never really taken off. Enderle believes a combination of the two could just be a problem sandwich.
"If it comes together and all we do is get an accumulation of both companies' problems, it's not going be a good ending," he says.
The possible merger is also likely to face scrutiny from anti-trust regulators in the U.S. and Europe, and that's likely to hold up the merger a year; meanwhile, Google is likely to continue to dominate.
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