Business

Deal might reshape the Internet landscape

BOSTON -- A combination of Microsoft and Yahoo could reshape the Internet landscape for millions of Web users: Would the two companies join their online portals? Could they rethink the desktop computer to integrate Web content more directly? The changes are potentially huge, but probably not in the short term.

Microsoft executives did not indicate Friday what they would do with Yahoo's brand if Microsoft's nearly $42 billion bid was accepted.

But analysts expect the combined companies would preserve many of their separate free services, such as instant messaging and e-mail programs.

A more likely medium-term change is that some of Microsoft's Web content could fade away or be added to Yahoo, which has a vast collection of news and features aggre-gated from other providers.

Microsoft's Web properties, including its Yahoo-like MSN portal, aren't exactly slouches: They rank third, trailing only Yahoo and Google, in total visitors. But while Yahoo is profitable, Microsoft's online services are a consistent money loser. The MSN search engine is a laggard, even with recent efforts to soup it up under Microsoft's online umbrella it calls "Live."

Having Yahoo in its tent could give Microsoft a rationalization for abandoning its unprofitable online elements.

"I think MSN folds into Yahoo," said Ian Campbell, chief executive officer of Nucleus Research. "It would be foolish to keep that separate."

Perhaps the biggest change Microsoft and Yahoo could achieve together would be creating a better way to combine the Web and desktop computing -- not to mention cell phones, TVs, cars and other gadgets that might someday plug into the Internet.

Consumers who access the Web on cell phones and handheld computers might be the first to find something new as a result of a Microsoft-Yahoo combination. Devices that run Microsoft's Windows Mobile operating system could be better integrated with Yahoo content and possibly yield new services, such as social networking functions.

And it can't come too soon: Google is leading development of an alternative cell phone operating system it calls Android.

Eventually, a teamed-up Yahoo and Microsoft might be able to rethink the PC desktop -- where Windows still runs 90 percent of the world's PCs -- so that Internet data such as stock quotes, weather and sports scores are automatically baked in.

"We all have our home page because we have a concept of a home page," Campbell said. Before long, "we may not have a home page -- it might just be the background of my desktop. There's no reason why Microsoft can't push this another level."

Microsoft might also use Yahoo's online strengths to galvanize Web-based versions of some of its powerful desktop software applications, such as Word and Excel.

Open-source rivals and Google are threatening to bite into Microsoft's lucrative Office software franchise with free versions of those kinds of "productivity" software. Microsoft is developing Web-based versions of its own, but slowly.

Now Yahoo could be the face through which Microsoft offers those online applications. Perhaps one day a Microsoft-fueled package of "Yahoo Apps" will go up against "Google Apps."

Even with these possibilities, analyst David Mitchell Smith, a vice president at Gartner Inc., believes the biggest change from a Microsoft-Yahoo deal probably would be the one most Web surfers don't notice. That would come as the companies tried to broaden their ability to deliver ads all over the Internet.

It's necessary because being the most popular online destination -- as Yahoo already is -- is no longer enough. The explosion of blogs, video sites and other user-generated content has made Internet travels more wide-ranging. As a result, the biggest Internet companies now need their ad networks to reach far beyond their home portals. Google has mastered that. Microsoft and Yahoo have not.

"I think that's really what it's all about," Smith said.

"It's about advertising. It's about search."

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