MS-Yahoo deal will be a blow to Google in Asia

TOKYO/SHANGHAI: A successful Microsoft Corp bid for Yahoo Inc could slow the growth of their common rival, Google Inc, in Asia, where the world's biggest search engine still lags local players.

For Microsoft, whose MSN portal has been struggling to gain share in Asia, the deal worth around $41 billion would open up opportunities to cooperate with top Chinese e-commerce firm Alibaba.com Ltd and Japan's top search engine, Yahoo Japan.

Yahoo and Microsoft are at a stand-off after Yahoo's board rejected Microsoft's unsolicited offer of $31 cash or shares, saying it undervalued the company.

If the deal goes through, Microsoft stands to gain a leg up over Google from cooperation with Alibaba's online software and Yahoo Japan's online customer base.

Yahoo owns 39 per cent of Alibaba.com's parent, and a third of Yahoo Japan.

"If I were Google, I would be looking for acquisitions or more tie-ups in Asia to help secure better market share," said Hiroshi Naya, analyst at Tokyo-based Ichiyoshi Research Institute.

In Japan, Google is outnumbered nearly three-to-two in users by Yahoo Japan, according to Nielsen Online, and it comes a distant second to Baidu.com Inc's near two-thirds share of the search market in China.

Analysts say the big "if" for a merged MS-Yahoo hoping to keep Google from the No.1 spot will be whether Microsoft can learn from Yahoo and adapt to local markets with their language and cultural barriers, to expand the merged company in Asia.

Yahoo’d edge

"The main concern is whether or not Microsoft would respect Yahoo Japan's unique culture, or if it will muscle its way into what Yahoo Japan has achieved here," said an official at Japanese mobile phone operator Softbank Corp, who asked to remain anonymous.

Softbank owns 41 per cent of Yahoo Japan, a 3.9 per cent stake in Yahoo Inc and a 33 per cent stake in Alibaba Group.

Rivals agree even successful domestic brands need to be modified to work in other countries or regions, particularly in Asia where language and cultural barriers are more pronounced.

"Business models need to be changed, adapted to fit local needs," said Baidu Chief Executive Robin Li.

"The details matter, and they take time to iron out," he said on the sidelines of a conference to launch the search engine in Japan in January.

Thanks to their early entries, Yahoo Japan and Alibaba have already cultivated strong ties with local users.

Besides leveraging their dominance in Asian Web markets, Microsoft may also be able to link up with Alibaba on advertising and online trading with the Chinese company's large customer base,

said Liu Bin, analyst at Beijing-based research firm BDA.

"The most likely possibility would be to use the MSN platform and MSN Live for marketing promotions for Alibaba," he said.

Alibaba's software venture, Alisoft, also offers online software for documents and spreadsheets which can be used over the Internet without having to download PC-based software like Microsoft Office.

This would counter Google's popular Web-based applications, and would give Microsoft a much-needed boost in the online software area where it is seen lacking.

Risks remain



But such synergies could end up as pipe dreams if China's government fears Microsoft will take control of Alibaba and sets conditions for the stake transfer, such as limiting the number of foreigners on the board.

And while Yahoo Japan and Alibaba are entrenched in their home markets, that does not mean their approaches will work as newcomers in other Asian markets.

Yahoo Japan, which also provides broadband Internet services, might find it hard to replicate its model across Asia as it seeks synergies with its telecoms business, while Alibaba's business model caters to manufacturers in China, analysts said.

"It's not necessarily the same dynamic outside China. They won't really have that scale that's reinforcing them now in China," said Claus Mortensen, analyst at IDC's Asia/Pacific Emerging Technologies Research.

Microsoft's cash and pool of researchers, however, are huge attractions for cash-strapped Softbank and Yahoo Japan seeking to cement the dominant position Yahoo Japan holds.

While wary of Microsoft control in locally-managed businesses, Yahoo Japan could take advantage of Microsoft's scale to lower marketing costs and help it tap Microsoft's resources to make searches faster.

But Google is unlikely to remain standing and could use the distraction of a drawnout battle between Microsoft and Yahoo to steal a march on its rivals.

It has already been developing tie-ups in Asia, including those with Japan's two biggest mobile phone carriers, NTT DoCoMo Inc and KDDI Corp.

Google has also bought stakes in Chinese Internet firms including downloading service Xunlei Networking and social networking site Tianya.cn, and has a partnership with Web portal Sina.

Analysts believe Japanese social networking site Mixi Inc and online marketing firms, could also be in Google's sights.

"Google is a worthy competitor. The common threat is Google. I say that with respect," Softbank President Masayoshi Son said last month.