Microsoft Could Stumble in Quest for Ad Speed

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Microsoft executives said very little on Friday about the undeniable challenges of integrating the company's Internet division with Yahoo, largely avoiding the proverbial elephant in the room that could delay or, in some cases, eliminate benefits of the deal.

Microsoft CEO Steve Ballmer made the offer in a letter to Yahoo's board of directors on Thursday, and released the text of the letter this morning.

(Go to PC World's Microsoft/Yahoo coverage page to read about and comment on this major technology event.)

At the heart of the acquisition is Microsoft's goal of giving its online advertising and online services business a major boost, ending years of business and technology defeats at the hands of common rival Google.

Specifically, Microsoft wants to make sure that, as online ad spending doubles to about $80 billion in the next three years, it will be in a much better position to grab a larger piece of the market, specifically in sponsored search, which is the biggest online ad segment and where Google dominates.

As CEO Steve Ballmer, President of Platforms & Services Division Kevin Johnson and Chief Software Architect Ray Ozzie said repeatedly during today's news conference, Microsoft wants to swallow Yahoo to accelerate its pace in online advertising. With Yahoo's online services, engineers and ad platforms, Microsoft hopes to become a stronger competitor to Google than it is today.

That all sounds fine in theory, but Ballmer and his colleagues said little about the energy and know-how they will need to make this proposed $44.6 billion acquisition work, considering that the companies have a significant overlap in online services, markedly different cultures, and an abundance of inflated professional egos at every level.

Not to mention that Yahoo these days is far from functioning as a well-oiled machine. Yahoo has been in significant turmoil for more than a year. Seasoned executives who are experts on its business have struggled and largely failed to restore the company's technical edge and business focus. That's a mess that Microsoft will inherit and will have to solve in order for the deal to work its expected magic.

In short, Microsoft must make sure that, in its quest for scale and speed, it doesn't end up getting stuck, its wheels spinning, trying to mesh Yahoo with MSN, while Google speeds further ahead. It's clear that to take advantage of the online ad growth, companies will need to innovate and change quickly, and not be sidetracked by acquisition distractions.

Among the many emerging opportunities in online advertising are: the mobile sector, which is expected to go from almost nonexistent to vibrant in the coming years; social Web properties, such as social networks, blogs and social news sites, which haven't been monetized properly and hold great promise; and video, both in the form of video ads and ads in videos.

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