Microsoft is offering to buy Yahoo! for $46 billion. Around the world it may not make very much difference for in search engines Google will still hold the lead. In China it may be something else again.

The theory being put forward by the pundits is that this is mainly Microsoft getting a grip of mobile communications.

At the recent World Economic Conference in Davos, Google Chief Executive Eric Schmidt said mobile Internet services have the potential to spark a ‘huge revolution’ in the coming year, comparable to the ‘re-creation of the Internet’ and the personal computer.

And there is much in what he says. Microsoft is also keen on having a bit of this action and with Yahoo!’s mobile assets and it is possible to see the combined companies coming up with some killer mobile applications.

Does this mean the combined companies will wipe Google around the world?

Not a bit of it. Just getting the two companies to work in synch will be difficult enough.

To get them to a state where they are challenging Google in the search engine stakes is some major task and will not be accomplished in a year or even two.

In his letter to Yahoo’s board of directors, Microsoft CEO Steve Ballmer touted ’significant benefits of scale in advertising platform economics’ as one of the key advantages of the acquisition. So, on the face of it, Microsoft wants some of the online advertising business where Google currently has about 42% with the rest divided between Microsoft, Yahoo, and Time Warner’s AOL.

The current online advertising market is still search-based. Neither Yahoo nor Microsoft could come close to Google in this field. Google is estimated to have a 58% share of the web search market while Yahoo has a 23% market share and Microsoft something in low single figures.

However, in China the two companies combined will be well set to take on Google which is far from being the market leader. It is possible the Microsoft is gambling first on establishing itself what is currently the second biggest market in the world and may well become the biggest before too many years are over.

There have been cynical comments that when you cross Microsoft and Yahoo!, you get Microsoft. Sadly, there is much truth in that cynicism.

It is an amazing deal and, perhaps, if it happens the first impact will be in China. The second on mobile phones.

But it is not yet a done deal. Add to that Microsoft’s track record on dealing with mergers and you feel the opposition can sleep soundly for the time being.
Source: Forbes