Google: Bidding for Yahoo or driving up cost for Microsoft?

Reports that Google is looking at Yahoo could pose problems for archrival Microsoft

The pursuit of Yahoo seems to be heating up as a report Monday added Google to a list of interested suitors that is already said to include Microsoft.

It's been widely reported in recent weeks that Microsoft is considering a new bid for the Internet pioneer. And this morning, the Wall Street Journal, citing unnamed sources, reported that Google has met with at least two private-equity firms to discuss making a bid for at least part of Yahoo.

Discussions are still in the "early stages" and a formal proposal has not been put together, the Journal added.

Analysts say Google could be either trying to scoop Yahoo up for itself or to drive up the cost of Yahoo.

"For the right price, and if it can get past the regulators, yes Google wants it," said Ezra Gottheil, an analyst with Technology Business Reserach. "Google is a machine that turns its users into profits. This is an acquisition that makes more sense for Google than Microsoft.

"I don't play an antitrust expert on TV, but I'd imagine this one would get some scrutiny," he added. "But it's a good idea. Yahoo has users and subscribers. It fits Google's business model. The single largest asset is the Yahoo mail and group users."

In fact, he said, buying Yahoo actually makes more sense for Google than it does for Microsoft.

Zeus Kerravala, an analyst with ZK Research, disagrees.

"My guess is that Google is driving the cost up for Microsoft," Kerravala said. "I don't think Yahoo does anything that Google doesn't, so they don't need them. And anything that causes a delay to Microsoft executing on something is good for Google."

He added that anything that causes Microsoft to spend more money buying Yahoo -- money that then could not be used to compete directly against Google -- would be a big plus for Google.

Yahoo, which has fallen from its once lofty position as an Internet pioneer, has been in a state of flux. Just last month, Yahoo's board fired then-CEO Carol Bartz.

Since then, speculation has blossomed that Microsoft, which made a failed bid for Yahoo back in 2008, is back in the hunt.

Last week at the Web 2.0 Summit in San Francisco, Microsoft CEO Steve Ballmer said it was good fortune that his company didn't buy Yahoo for a lofty price three years ago. It's widely believed that if Yahoo sells now, the price would be considerably lower than Microsoft's initial $44 billion bid.

Ballmer, though, did have several very good things to say about Yahoo, noting, "There's a lot of great things at Yahoo. Our alliance is important. They have one of the biggest, most vibrant audiences on the Internet."

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at @sgaudin, or subscribe to Sharon's RSS feed . Her e-mail address is

Copyright © 2011 IDG Communications, Inc.

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