Microsoft buyout rumors resurface, send Yahoo stock rising

Former Wall Street analyst Henry Blodget, who writes for the popular liberal blog The Huffington Post, posited Friday that there is no way Microsoft could achieve this goal on its own, so an acquisition may be in the works. His comments come after Microsoft President of Platforms and Services Kevin Johnson outlined the company's online search goal at a UBS investor conference in Seattle on Thursday.

In his blog posting, Blodget said Microsoft is no closer to succeeding online than it was when it began 12 years ago, and noted that the company's online division is still losing about US$1 billion a year.

Seeing as Microsoft still trails both Google and Yahoo for search market share and advertising revenue, and assuming that "Johnson is not a moron," Blodget wrote that the only way company executives think they can achieve the goal is by making a very specific purchase. According to site analytics firm Compete, Microsoft's online search market share was 9.2 percent in September compared to Yahoo's 19 percent and Google's 67 percent.

"How could Microsoft actually achieve the goals Kevin Johnson laid out?" he asked in his blog. "There's only one answer: Buy Yahoo. Buying Yahoo would give Microsoft 30 percent search share instantly."

Yahoo shares closed up nearly 6 percent Friday on renewed speculation about a possible buyout by Microsoft. Company stock opened the day trading at $25.67 and closed at $26.82.

Both Microsoft and Yahoo have said they will not comment on rumors or speculation about a deal, gossip that ran rampant in the industry earlier this year. At the height of the rumors, Microsoft purchased digital services agency aQuantive for about $6 billion in May, the largest acquisition the company has ever made.

Still, though the aQuantive deal closed in Microsoft's fiscal first quarter, which ended Sept. 30, the revenue for Microsoft's Online Services Division (OSD) grew only 25 percent year over year, and analysts criticized the company for that performance. Even Microsoft Chief Financial Officer Chris Liddell at the time acknowledged that this kind of growth in OSD, despite all of Microsoft's investment to grow its online strategy, was "acceptable, but not stellar."

Microsoft began to ramp up its investment in growing online advertising revenue and building out more online services in earnest in November 2005, and since then even overhauled and rebranded its Web search engine, Live Search. The company also has rolled out an entire portfolio of new and revamped online services under the brand Windows Live to compete in this area.

If Microsoft does indeed purchase Yahoo, Blodget wrote that it would be a far better deal for the software giant than it would be for the struggling online services company. He said that the deal "would be disastrous for Yahoo, which is having enough trouble competing with Google on its own."

"Imagine what would happen if it got swallowed by the Redmond whale," Blodget wrote. "In six months, all the remaining strong people would be gone."