Competition for increasing market share of eyeballs hitting search engines is heating up. Talks of a possible link up between Microsoft and Yahoo to take on market leader Google has not surprised analysts but is being considered as possibly the only way to bring down the online search giant from its leading position on the internet.

If the fresh reports are to be believed, Yahoo seems to be keen to examine a significantly substantial joint venture or a merger of Microsoft’s internet assets and all or part of Yahoo. Such a formidable alliance would be intended to bring together online revenue from both the firms and to develop new internet advertising technologies. At the same time, sources on terms of anonymity have said that Microsoft is not interested at this stage in pursuing a hostile bid.

Rumor was rife on Wall Street that Microsoft was set to launch a $55 billion takeover bid for Yahoo, but sources close to the talks said that plans to merge parts of the two operations were also being discussed. Though the exact nature of combination between the companies could not be ascertained yet, but it is now revealed that they are discussing about coming together to compete with Google.

Recent strategic takeovers by Google has helped it to increase its revenues from online advertising market and has left Yahoo and Microsoft’s MSN arm trailing behind by all accounts. The fresh talks are reported to have been held between Microsoft and Yahoo executives. The Wall Street investment bank, Goldman Sachs, is advising Microsoft on the possible business combination. In fact, Microsoft and Yahoo in recent times were already involved in considering some kind of combination, including the sale of a stake in Yahoo’s search and advertising business to Microsoft. However, both the companies have failed to reach any agreement, so far.

Microsoft officials have been refrained from commenting on the issue saying that they would not comment on speculation about an acquisition of Yahoo. In the meanwhile, a person familiar with the ongoing discussions has signaled that one preference which had been considered was connecting of advertising networks to generate additional Web traffic. Though it was also confirmed that there had been no recent acceleration in the talks but there could be one strong possibility of a broader partnership involving the companies’ Internet properties, rather than an acquisition.

Moreover, an out-and-out buyout by Microsoft might experience opposition among Yahoo executives who genuinely consider the company’s single focus on the Internet as one of its main strengths. In addition, they could be apprehensive of becoming a division of Microsoft, which is a much larger firm whose leading business remains software. On the contrary, analysts believe that an alliance of the two companies’ online businesses would put forward a potentially influential counterbalance to Google’s dominance of the online search and advertising market.

Unquestionably, placing advertisers and share of the search business under one umbrella, each firm would bring a enormous quantity of data about user behavior, which if combined, could generate exceptional results for advertisers. In addition, Yahoo is capable of revitalizing Microsoft’s disturbed online initiatives.

According to the latest figures from Nielsen NetRatings, Google had 54 percent of the US search market, while Yahoo had 22 percent and Microsoft 10 percent. And according to eMarketer, an online research firm, of every $100 spent in online advertising in the US last year, Google managed to lay hands on $25, while Yahoo got $18 and Microsoft received less than $7.

As a matter of fact, Microsoft has no experience of assimilating a merger of this size and the records of big mergers between firms with intensely different corporate cultures suggest that the pointer will move in the opposite direction. Further, an acquisition could also prove unmanageable, involving a combination of companies with divergent cultures and leadership structures and may invite severe government scrutiny over possible antitrust violations.

However, in any circumstances, Microsoft undoubtedly needs to initiate some kind of tough and bold measures because it remains a distant third in the lucrative online search market even though investing heavily in an endeavor to gain ground on Google and Yahoo.

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