Imran Khan at JP Morgan: Microsoft and Yahoo will likely encounter little resistance from regulators, since their combined share of the search market would only be around 30% compared to Google’s 60%. The combination would give Microsoft much needed scale, which would be invaluable in challenging Google…
“Further, we believe the increased scale of the combined search entity would lead to improved monetization due to a number of advertisers, which positively impact coverage, click-through rates, and pricing.” Microsoft’s command of access points through Windows, X-box, and Internet Explorer would enable it channel yet more search. This is a crucial synergy.
Citi’s Mark Mahaney:
“For Microsoft or any other company seeking to gain scale in Internet advertising, Yahoo! is an obvious strategic choice given its position as one of the top 3 Web properties worldwide.” Citi cautioned against over-enthusiasm, noting that while the prospective merger would “pose a greater competitive risk to Google. But near-term, we’d be sceptical that search users’ overwhelming preference for Google would change.”
Sandeep Aggarwal, Oppenheimer: We believe that in the long run both Microsoft and Yahoo! as a combined company might emerge as a stronger competitor for Google, but lots of developments would have to take place before that happens.
• Google owns nearly 75% of the search market and Microsoft and Yahoo! together own nearly 18% of search marketing.
• Display advertising is the second largest online ad format at 33% of total worldwide online advertising. Google currently owns less than 2% of the display market (with DoubleClick this would increase) and Microsoft and Yahoo! together own nearly 30% of display market.
• With this move, the likelihood of the EU rejecting Google’s acquisition of DoubleClick goes down.
• Regarding VCLK, as the largest independent ad network, we view them as a beneficiary of industry consolidation and a leading takeout target.
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