May 24, 2007 1:59 am

Microsoft plays down Yahoo move

Microsoft has played down reports that it could acquire Yahoo, saying agreeing to buy the Aquantive online advertising company for $6bn last week has given it all it needs.

Yusuf Mehdi, Microsoft’s chief advertising strategist, told the Goldman Sachs Internet Conference in Las Vegas in answer to a question on whether the search engine company had assets that could assist the software giant: “From where we are today, I think we have all the pieces.”

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It emerged earlier this month that Microsoft had made a tentative takeover approach for Yahoo.

But on Friday, Microsoft agreed to pay $6bn incash for Aquantive – more than four times the size of its previous largest acquisition.

Mr Mehdi hinted that Microsoft would makemuch smaller bolt-on acquisitions in future to fill inany gaps in its internet offerings.

“There are other small pieces that we’re in the process of getting to as well, organically or otherwise,” he said.

He added that the Aquantive deal put Microsoft in a strong position to serve display advertisements on websites targeted to users’ interests and behaviour.

He said this kind of advertising was growing faster than the text-based kind
that appears with search results on services such as Google’s.

Google has agreed to pay $3.1bn for DoubleClick, whose technology serves display advertisements.

Microsoft is objecting to the deal on antitrust grounds, arguing that it would give Google 80 per cent of the market.

A merger or partnership with Yahoo could have given Microsoft access to the
Silicon Valley company’s own advertising technologyas well as its extensive content from a network of websites.

But Microsoft’s sites, including the MSN network, already boast the largest internet audience withhalf a billion visitors a month and with the Aquantive acquisition it will
offer advertising services to sites outside its network. This is something it has
not yet attempted, apart from a relationship with the Facebook social networking site.

A combined Microsoft and Yahoo would still trail Google significantly in search.

Google had 55 per cent of all search queries in the US in April, according to Nielsen NetRatings, compared with 22 per cent for Yahoo and 9 per cent for MSN/Windows Live.

Mr Mehdi said Microsoft was planning new features for its search service that would give Google a “run for their money”.

He said it was necessary to “do something big and bold and different” to try
to displace the market leader.

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