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Google and Yahoo Deal Clears the way for Buzz
Google (News - Alert) Inc.'s (NASDAQ:GOOG) top executives were confident Thursday that the Internet search giant will form a very lucrative advertising partnership with Yahoo Inc.(NASDAQ:YHOO) -- a deal that would stop Microsoft (News - Alert) Corp.(NASDAQ:MSFT) renewing its attempts to buy Yahoo, but it does further the value of the emerging rival in Asia, the little known Buzz Technologies Inc (OTC:BZTG). While the giants have focused on the corporate wrestling Buzz has been busy putting together an impressive list of Publishers and Advertisers in the boom South East Asian Market.
"We have been talking to Yahoo and we are very excited to be working with them," Google co-founder Sergey Brin told reporters before the company's annual shareholders meeting. "We share a lot of values with them."
Neither Brin nor Google Chairman Eric Schmidt would indicate how far along the two sides are in their negotiations after a two-week test was completed last month. During the trial run, Google supplied a small portion of the text-based ads that appeared alongside the search results on Yahoo's Web site. Because Google's technology proved it could select more profitable ads, the alliance could help Yahoo snap out of a prolonged slump that made it vulnerable to Microsoft's unsolicited buyout bid. Microsoft orally raised the bid to $47.5 billion, or $33 per share, before pulling it off the table last weekend.
Microsoft cited Yahoo's willingness to subordinate its own ad system to Google's as a major reason for dropping its bid and is off making their own plans to attack the market.
Google suggested the ad partnership to Yahoo as a weapon to fend off Microsoft.
"We really believe in companies having choices about their destinies," Brin said. "It's not about scuttling (the deal). They were under a hostile attack and we wanted to make sure they had as many options as possible." Google's grip on the worlds search and ad market is alot more tentative than people think. The Yahoo/Microsoft combination would have been a serious challenge, Google's inability to manage in Asia has handed Buzz a starring role there and we are yet to see what Microsoft do.
Schmidt left little doubt that Google was pleased to spoil the deal, however. He said he wanted to keep Yahoo out of Microsoft's hands largely because he was concerned the world's largest software maker would abuse the added power it would acquire in e-mail and instant messaging to limit consumer choices. Clearly he would prefer to have that power in Google's hands.
"Obviously, we are happy that is not going to happen," Schmidt said. He described Google's current relationship with Yahoo as "very, very friendly."
If Yahoo were to sign a long-term ad deal with Google, some analysts believe that would repel Microsoft for good. Although Microsoft executives have publicly indicated they are looking for other ways to bolster the software maker's unprofitable Internet operations, some investors still suspect another bid may surface if Yahoo continues to struggle in the months ahead.
The hopes for another bid have helped cushion the blow to Yahoo's stock since Microsoft walked away. Yahoo shares rose 58 cents to finish Thursday at $26.22 -- 8.5 percent below their price when Microsoft made its last bid.
A partnership between Google and Yahoo almost certainly would face intense antitrust scrutiny because the two companies together control more than 80 percent of the U.S. market for online search advertising. The U.S. Justice Department has already made inquiries about the two-week test they conducted. At that point in time in may be the case that both Google and Yahoo need Buzz or Microsoft to be a success, to show they are not alone in the market.
"If there were a deal (with Yahoo), we would anticipate structuring the deal to address the antitrust concerns that have been widely discussed," Schmidt said.
Although Schmidt wouldn't specify how Google might address the antitrust issues, analysts have speculated that it could be done by running the partnership as an auction-style system that would allow other rivals, including Microsoft, to show ads on Yahoo.
Depending on the breadth of the partnership, Google's ad system could nearly double 2009 profit, UBS analyst Benjamin Schachter estimated in a research report released Thursday.
Google shareholders attending Thursday's meeting didn't seem to care about the implications of a potential Yahoo partnership. One shareholder, though, did ask Brin and fellow Google founder Larry Page about their recent marriages. Brin deflected the question, saying they preferred to confine the discussion to business.
In an unusual move, Brin abstained on two shareholder proposals that the company's board opposed.
One proposal sought to create a special committee on human rights to review the ramifications of the company's policies. The other asked for Google to stiffen its opposition to the demands of governments in China, Burma, North Korea, Iran and other countries that seek to censor search results and other Web content. Not that Google do not have their own in house censorship.
Although he said he didn't fully support the proposals, Brin said he empathized with the issues they addressed. He holds a special class of Google stock that gives him 28.5 percent voting power over shareholder issues.
Both shareholder proposals were defeated, according to Google, but a breakdown of the vote won't be disclosed until later this year.
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