In Mobile, Yahoo Brings More to Microsoft

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Microsoft's intended takeover of Yahoo would instantly raise its profile on the burgeoning mobile Internet.

BARCELONA (Reuters) - Microsoft Corp's intended takeover of Yahoo Inc would instantly raise its profile on the burgeoning mobile Internet by adding Yahoo's range of on-the-go services to its mobile unit, until now focused on promoting its own operating system.

Yahoo has made strides in the last year to position itself for an expected explosion in Internet usage on cellphones, developing slick tools for mobile search, mail and social connections that have caught the eye of big telecoms carriers.

That strategy will likely pay off in terms of mobile advertising revenues in the medium to long term -- too late to make any difference in the face of Microsoft's unsolicited $42 billion bid, rebuffed by Yahoo as too low.

Microsoft has sought to duplicate its PC strategy with a mobile phone operating system, Windows Mobile.

But the software is in only a small proportion of so-called smartphones -- phones with computer-like functions -- and mobile users are focusing more and more on online services they can access rather than just applications loaded on handsets.

Microsoft's MSN Mobile service, offering access to its popular instant messenger as well as search, mail and news, could benefit from Yahoo's services expertise, though its perceived strong-arm tactics could upset relationships Yahoo has built with telecoms carriers.

Microsoft signaled change in its mobile strategy at this week's Mobile World Congress fair in Barcelona by saying it was buying consumer mobile software company Danger -- just before announcing that the head of its mobile unit would quit to join Vodafone Group Plc.

"There's clearly a renewal going on at Microsoft Mobile," said Ben Wood of CCS Insight, citing Microsoft's alliance with Sony Ericsson, also announced at the fair, and a previous acquisition of voice Web search company Tellme.

Unlike other parts of Yahoo -- such as PC search, e-mail or instant messaging -- the addition of Yahoo's mobile activities should not result in redundant capacities at Microsoft because the mobile Web services market is so new and growing so fast.

But there is little obvious to gain from any deeper integration of the two -- on the contrary, it could make Yahoo's software less easily adaptable to the specifications of handset makers or operators -- currently a strength for Yahoo.

Yahoo's software for keeping up with social networks or finding local information easily on the go does fit with Windows Mobile, however, as well as with other platforms.


Outgoing Windows Mobile chief Pieter Knook declined to speak about the Yahoo plan.

Yahoo so far has access to 600 million mobile subscribers, through deals with carriers such as the one it announced in Barcelona this week with Deutsche Telekom's T-Mobile. It aims to reach 1 billion by the end of 2009.

Microsoft, by contrast, has sold about 40 million licenses of Windows Mobile for smartphones to date and has roughly one-tenth of the market for such phones.

Speaking to Reuters in Barcelona this week, the head of Yahoo's mobile business, Marco Boerries, also declined to speculate on the potential impact on Yahoo's mobile operations of any merger with Microsoft.

He did explain, however, Yahoo's decision some years ago not to build its own mobile operating system or handsets, or to become a mobile virtual network operator -- a provider of mobile service that piggybacks on the networks of others.

"It would have been a distraction," Boerries said, pointing to what he characterized as a scramble by archrival Google Inc to get its open-source Android phone operating system off the ground at the expense of its core business.

Boerries said Yahoo's strength in mobile was its nimbleness in adapting to the rapidly changing needs of handset makers and operators. "We don't believe that the mobile market will get any less fragmented any time soon."

Analyst Jeffrey Lindsay of Sanford Bernstein said, however, that gaining expertise in operating systems through Microsoft would be "not a bad thing at all" for Yahoo, although not necessarily the best use of its own resources.

He said a deeper understanding at a hardware level of the requirements of network gear makers such as Ericsson or handset makers like Nokia could only help make Yahoo's software easier to adopt.

"It's a major area of potential revenue synergy," he said, adding that he considered the acquisition of Yahoo's mobile business a "fortuitous benefit" rather than a driver of the takeover bid by Microsoft.

"If they failed to exploit that, we would consider it a missed opportunity."

(Editing by Braden Reddall)

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This article was originally published on 2008-02-15
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