Outlook: Another tilt at Yahoo might suit Microsoft

It is only three years since Microsoft fought a bitter and, ultimately, unsuccessful battle to buy Yahoo. Given that the internet company is today worth less than half the $47.5bn Microsoft was prepared to pay for it in 2008, it would be odd if executives were not at least thinking about the idea of making a second attempt for control. Microsoft yesterday stuck with its policy of refusing to comment on speculation about corporate actions, following a Reuters report claiming that a resurrection of the chase for Yahoo is now being considered. But some in the market are taking the idea seriously – Yahoo shares initially rose more than 10 per cent on the report, before giving up some of the early gains.

Moreover, while technology analysts say that Microsoft would not retread old ground, there is a compelling case for doing so. Yahoo is certainly out of favour in the tech community, which long ago decided the company was yesterday's news, but it still has plenty to offer suitors, and Microsoft in particular.

Let's put it this way. Why wouldn't Microsoft be interested in acquiring a business that might give it a chance of transforming its search engine operation into a genuine challenger to Google, especially since it may well be able to do so at almost no cost in the medium term because Microsoft could break it up, selling on much of the business in order to recoup its investment. It would be simple enough, for example, to offload Yahoo's 40 per cent stake in China's Alibaba to the highest bidder. Other disposals would follow.

Microsoft's fallback position after failing to buy Yahoo in 2008 was a 10-year deal under which its search engine's technology powers Bing, Microsoft's own search business.

The agreement hasn't come cheap, with Bing required to hand over almost all the advertising revenue it earns in return. And neither Bing nor Yahoo has managed to make inroads into Google's 65 per cent market share in the Western world, with each stuck on around 15 per cent each of search.

However, properly combined, the pair of them might just stand a chance.

Remember too, that Microsoft's chief executive officer, Steve Ballmer, has come under increasing pressure to show that he has a vision for moving Microsoft on. One concern has been its inability to compete in the mobile phone market, where Apple and Google Android have disappeared over the horizon.

The deal Microsoft signed with Nokia earlier this year, which will see the Finnish giant install Microsoft's operating system on its smartphones, at least shows that matter is being addressed. But there has not been an equivalent move towards trying to address Google's dominance in the internet searchmarket. Watch this space.