May 11, 2006 7:01 pm

Yahoo rebuffs Microsoft offer

Terry Semel, chairman and chief executive of Yahoo, said on Wednesday he had turned down an offer from Microsoft to buy a stake in Yahoo’s search business and that discussions about Bill Gates’ software group acquiring the company had not taken place.

The comments to media executives reflect the discussions internet companies are having about alliances as they jostle for position in the lucrative search business dominated by Google.

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Mr Semel said he had talked to Microsoft about continuing their partnership under which Microsoft’s MSN online arm has used Yahoo for search advertising. MSN has decided to end this and plans a rival advertising service to Google and Yahoo.

“Microsoft taking over Yahoo – that conversation has never come up,” Mr Semel said at a talk organised by the Newhouse communications school of Syracuse University. “[We discussed] search, and Microsoft co-owning some of our search. I will not sell a piece of search – it is like selling your right arm while keeping your left; it does not make any sense.”

MSN plans a search service aimed at capturing some of the billions of dollars of search advertising generated by Google and Yahoo. Google dominates the market, which has become the biggest source of revenue for internet advertising. This week, Google said it had refocused its development activities to channel more resources into its core search engine.

“My impartial advice to Microsoft is that you have no chance,” Mr Semel said. “The search business has been formed.”

However, Mr Semel said it was possible the search business itself could change. In particular, the popularity of search products in Korea and Taiwan that are based on people answering questions rather than electronic searches of the web might be a future model.

“I do not expect [web] search to decline but it may not be the way you do it two or three years later,” he said. “Is web search the killer application or just the first? Knowledge search, as they call it in Korea, or social search, as we call it, has blown through the roof. There may be changing dynamics.”

Mr Semel, who became Yahoo’s chief executive five years ago after running traditional media companies, including Warner Bros, said he expected the growth in broadband connections in the US to make video on the web ubiquitous.

Building on Mr Semel’s experience, Yahoo has prioritised content provision for its users. However, Mr Semel said he had cancelled some plans for Yahoo to produce its own content.

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