As Google (GOOG) Walks Away, Yahoo! (YHOO) Looks To AOL And MySpace

Google (GOOG) always had a problem trying to keep Yahoo! (YHOO) out of the hands of Microsoft (MSFT). The No.1 and No.2 search engine firms would have had 80% of the US market if Google took over the function for both companies. As The Wall Street Journal writes, the deal was dead from the start because of "concerns about the intense regulatory scrutiny it could attract, given Google’s and Yahoo’s significant shares of the Web-search and online-advertising markets,"

There are ongoing rumors that News Corp (NWS) and Time Warner (TWX) may have an interest with linking up with Yahoo!. If the portal really wants to stay independent either deal could make sense. Yahoo! could extend its search function over the NWS MySpace property, which is now one of the five most visited sites in the world, or over AOL, which is also in the top five. This could, in effect, move Yahoo!’s search engine share from the 20% range to closer to 30%. That would still be well short of Google which is around the 55% level.

A deal with News Corp or Time Warner would not push Yahoo! into first place in search, but it could make it a strong second which would drive more revenue and could raise the company’s market value.

News Corp might have to put MySpace and some cash into a new Yahoo!/MySpace which would have the largest number of unique users of any web property in the world. Of course, MySpace does have a search deal with Google.

And, AOL also has a search deal with Google. Google owns 5% of AOL. Time Warner might like to take AOL and some cash and own a piece of a new Yahoo!/AOL. It would take the problems of operating a shrinking AOL off its back and give it currency in a more valuable company.

Why would Google allow this to happen? The No.1 search operation would let either company out of its contract so that they could form a Yahoo! alliance for one very powerful reason. It would keep Yahoo! out of Microsoft’s arms.

Douglas A. McIntyre