Mobile Marketer has re-launched! Click here to learn more!

How will Microsoft's bid for Yahoo affect mobile?

Microsoft Corp.'s $44.6 billion bid for the troubled Yahoo Inc. will not only create an online behemoth that challenges Google but also a formidable competitor to all players in the mobile space.

If the deal does go through, Microsoft's Windows Mobile operating system and Windows Live Search offering will operate under the same roof as Yahoo's oneSearch and Yahoo Go platforms. Will 1+1=3, as they say in retail during mergers and acquisition announcements?

"The mobile channel is so much bigger than the online giants, but this is one area where Microsoft and Yahoo have strengths that could play-off each other," said David Berkowitz, director of emerging media and client strategy at interactive agency 360i, New York.

"Microsoft is focused on gaining distribution of its operating system, while Yahoo Mobile is one area where it remains a strong competitor to Google," he said. "If Microsoft can make it even easier for consumers to access Yahoo's mobile services, this could be one of the most successful parts of the acquisition."

Microsoft's play for Yahoo sets the stage for a very exciting marketplace in the coming year, said George Friborg, director of marketing at Philadelphia mobile marketing agency M3Mobile.

"This will no doubt create huge opportunity for a mobile marketing agency like us," Mr. Friborg said. "The technology innovation competition between Google and Microsoft can only benefit our retail clients and ultimately their consumers."

A duopolistic future
However, the deal will certainly change the face of online advertising, especially the dynamic between Microsoft and Google, the undisputed leader in online search.

Microsoft's acquisition of Yahoo creates a large display inventory that would be available to advertisers through one point of contact. It will also help counteract Google's dominance in display advertising with the recent purchase of online display and ad serving firm DoubleClick. But the deal may not impact mobile at first.

"Mobile is still at its infancy and would therefore be a small piece of what this deal implies," said Neil Strother, mobile analyst at JupiterResearch, New York. "I think this deal will have a bigger effect on Web search and advertising."

Microsoft's proposal would allow Yahoo shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo shareholders consisting of one-half cash and one-half Microsoft common stock.

The offer represents a 62 percent premium above the closing price of Yahoo common stock on Jan. 31.

Microsoft said the combination will create a more efficient company with synergies in four areas: scale economics driven by audience critical mass and increased value for advertisers; combined engineering talent to accelerate innovation; operational efficiencies through elimination of redundant cost; and the ability to innovate in emerging user experiences such as video and mobile.

The Redmond, WA-based software company believes these four areas will generate at least $1 billion in annual synergies for the combined entity.

"[Microsoft and Yahoo] both have mobile efforts and Yahoo is more advanced and that's why Microsoft may be interested," said Charlene Li, analyst at Forrester Research, Cambridge, MA. "Yahoo has Yahoo Go and Microsoft has Windows Mobile and putting the two together may result in something powerful."

Web of opportunity
Mobile has picked up the pace over the years. Companies are beginning to understand the potential for monetization in the channel. Yahoo and Microsoft are good examples of that as both companies have made strides in mobile -- Yahoo with its Yahoo Go and Microsoft with Windows Mobile.

"The mobile channel is a very important part of merging the digital marketing mix," said Ramesh Lakshmi-Ratan, chief operating officer of the Direct Marketing Association, New York. "Both Yahoo and Microsoft have been focusing on developing the mobile marketing channel and they have the strength to possibly become leaders in the space."

In the long term, mobile devices will be used to access the Web in the same way that PCs are used to access the Web. Devices such as the Apple iPhone and higher access speeds available via the cellular companies clearly portray that direction, said Roy Shkedi, CEO of AlmondNet, a New York-based behavioral targeting advertising firm.

"Google, Yahoo and Microsoft are all striving to become a leader in this space," Mr. Shkedi said. "Google's Android [open source platform] and Microsoft for mobile operating systems will also help in making this future a reality."

The question is whether those operating systems will give their owners an edge in the mobile advertising space.

"I believe that the answer is no in the long term," Mr. Shkedi said. "In the same way that Microsoft cannot use its Internet Explorer to gain an edge over its competitors in search, so won't Google be able to do so."

Basically it comes down to the same issues: Which mobile search engine offers better results and an improved experience for the end user?

Microsoft has developed a plan and process that will include the employees of both companies to focus on the integration of the combined business. Microsoft intends to offer significant retention packages to Yahoo engineers, key leaders and employees across all disciplines.

Microsoft believes this proposed combination will receive all necessary regulatory approvals. It expects that the proposed transaction will be completed in the second half of this year.

Per a statement issued Feb. 1, Microsoft is working closely with Yahoo management and board of directors as they -- along with Yahoo shareholders -- evaluate this proposal.

"It's hard to speculate whether such a massive deal goes through or not," said Are Traasdahl, president/CEO of mobile content retailer ThumbPlay, New York. "If it does go through I feel it will be a positive impact on the industry. Yahoo is very active in the mobile space and this is a great way for Microsoft to build out mobile advertising and the underlying technology for it."