Yahoo deal could pry ad market from Google's grip

By Michele Gershberg- Analysis

NEW YORK (Reuters) - A combined Microsoft and Yahoo could pose a real challenge to Google overseas and in hot new ad markets such as mobile Internet, but only if Microsoft ignores its basic instincts.

Microsoft Corp's unsolicited offer of some $44.6 billion for Yahoo Inc would create a larger second player to Google Inc's dominance of Web search and put nearly 600 million unique monthly visitors from around the world under one roof.

But the success of a merger would depend on letting some of Yahoo's brands survive and even acknowledging that a few of its products are superior to Microsoft's, ad executives and experts said on Friday.

"They've got to resist their own impulses, which would be to roll the Microsoft product with the Yahoo product and bundle it all in Windows Mobile," said Daniel Taylor, senior analyst at research firm Yankee Group. "It might mean making some hard decisions about whether Yahoo's search product is better."

To be sure, Yahoo has yet to show signs of accepting the offer. Major concerns remain over whether Microsoft could keep Yahoo staff on board while integrating two very different corporate cultures and combining separate e-mail, messaging and advertising platforms.

But advertisers will like the deal because they want more consolidation in the estimated $40 billion Internet market and hope to see a strong alternative to Google.

"They don't like one-player markets because they lose complete control. They don't like markets with lots and lots of competitors either," said Rishad Tobaccowala, chief executive of the Denuo Group, a consulting arm of Publicis Groupe SA.

"The agency structure and marketer structure is that they are only used to dealing with 8 or 9 people in a particular category. Otherwise they don't know how to do it," he said.