In Mobile, Yahoo Brings More to Microsoft

BARCELONA (Reuters) – Microsoft Corp’s intended takeover of Yahoo Inc would instantly raise its profile on the burgeoning mobile Internet byadding Yahoo’s range of on-the-go services to its mobile unit, untilnow focused on promoting its own operating system.

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

That strategy will likely pay off in terms of mobile advertisingrevenues in the medium to long term — too late to make any differencein the face of Microsoft’s unsolicited $42 billion bid, rebuffed byYahoo 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-calledsmartphones — phones with computer-like functions — and mobile usersare focusing more and more on online services they can access ratherthan just applications loaded on handsets.

Microsoft’s MSN Mobile service, offering access to its popularinstant messenger as well as search, mail and news, could benefit fromYahoo’s services expertise, though its perceived strong-arm tacticscould upset relationships Yahoo has built with telecoms carriers.

Microsoft signaled change in its mobile strategy at this week’sMobile World Congress fair in Barcelona by saying it was buyingconsumer mobile software company Danger — just before announcing thatthe head of its mobile unit would quit to join Vodafone Group Plc.

"There’s clearly a renewal going on at Microsoft Mobile," said BenWood 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 instantmessaging — the addition of Yahoo’s mobile activities should notresult in redundant capacities at Microsoft because the mobile Webservices market is so new and growing so fast.

But there is little obvious to gain from any deeper integration ofthe two — on the contrary, it could make Yahoo’s software less easilyadaptable to the specifications of handset makers or operators –currently a strength for Yahoo.

Yahoo’s software for keeping up with social networks or findinglocal 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, throughdeals with carriers such as the one it announced in Barcelona this weekwith 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 ofWindows Mobile for smartphones to date and has roughly one-tenth of themarket for such phones.

Speaking to Reuters in Barcelona this week, the head of Yahoo’smobile business, Marco Boerries, also declined to speculate on thepotential impact on Yahoo’s mobile operations of any merger withMicrosoft.

He did explain, however, Yahoo’s decision some years ago not tobuild its own mobile operating system or handsets, or to become amobile virtual network operator — a provider of mobile service thatpiggybacks on the networks of others.

"It would have been a distraction," Boerries said, pointing to whathe 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 inadapting to the rapidly changing needs of handset makers and operators."We don’t believe that the mobile market will get any less fragmentedany time soon."

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

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

"It’s a major area of potential revenue synergy," he said, addingthat he considered the acquisition of Yahoo’s mobile business a"fortuitous benefit" rather than a driver of the takeover bid byMicrosoft.

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

(Editing by Braden Reddall)

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