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Is Google killing Microsoft?

Microsoft & Yahoo's deal looks dead, what's next?

The Microsoft-Yahoo megamerger now looks far less likely than it did late last week.

But the reason the companies would want to join forces - Google's continued dominance in online advertising revenue and in web-based services in general - remains as strong as ever. And it raises questions about what Microsoft's next move will be to generate a healthy online advertising business and avoid losing even more ground to the flourishing search company.

There are many reasons why a Microsoft-Yahoo deal would have been a bad idea, and some in the industry are breathing a sigh of relief that they won't have to deal with the complexity it would have wrought.

Critics questioned how the two companies would navigate separate ad platforms and network infrastructures, as well as how they would integrate their disparate corporate cultures. They also said the full union of the companies would take at least two years to complete, giving Google even more time to solidify its leading market position.

Wall Street analysts also noted it would be a bad idea for Microsoft to undertake such an enormous merger when the company has traditionally made smaller, more strategic acquisitions. A research note by analyst Heather Bellini at UBS advised the company to tackle its online technology challenges on its own while acquiring more customers by buying startups and other small companies.

However, she also noted that there aren't a lot of valuable internet assets on the market now that Google has snapped up Doubleclick, a deal that is expected to close by the end of the year.

Microsoft's online action plan

So what's a software company that waited too long to capitalise on the new business model of the internet to do now? Microsoft is in dire straits in the online advertising market, and the company has to change tactics before it becomes too late to even be a serious contender, let alone the revenue leader, as Microsoft CEO Steve Ballmer has promised.


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