Analysts: Without Yahoo, Microsoft Should Quit Ad Business

In the next 18 months, Microsoft (MSFT) either needs to purchase all of Yahoo (YHOO), acquire Yahoo’s search advertising business, or get out of online ads altogether, say Cowen and Company analysts Kevin Kopelman and Jim Friedland. Microsoft’s online services business (OSB) cost the company $480 million on revenues of $770 million in the third quarter and the Cowen analysts believe the trend will continue:

None of Microsoft’s online initiatives have gained traction and we do not believe the company’s current strategy will result in a change in the status quo. We estimate that the OSB unit will have a 7-8 per cent drag on Microsoft’s earnings in FY2009. As the economy slows, we believe pressure will increase on the company to focus on profitable initiatives.

In a deal that sounds a lot like the on-again, off-again plans for AOL (TWX)-Yahoo merger, the Cowen analysts suggest the best way out for Redmond might be to swap MSN and Windows Live for a Yahoo equity stake.

(Photo by barron)

See Also:
Microsoft Windows: The Beginning Of The End

Unanswered Questions About Microsoft’s New Cloud Service “Azure” (MSFT)

Microsoft Books A Strong Quarter, But Outlook Is Cautious

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