Breaking: Microsoft & Yahoo Considering Merger

Quoting our favorite source of “people familiar with the situation,” the Wall Street Journal (subscription required) claims that executives at Microsoft and Yahoo are in early-stage discussions about merging the two companies to take on Google. Investors seem to be taking this seriously, as Yahoo shares surged in overseas trading because of this news. The company’s market value is now close to $38 billion up from $32 billion earlier this week. So if you want to quantify this rumor, there you have it: the world thinks its worth $6 billion dollars.

There were actually talks of this merger a year ago, but they eventually fizzled out. This time around the possibility is much more likely because of Google’s continued growth and, more importantly, significant management changes at both companies. Last month, Microsoft and Yahoo both lost the chance to buy DoubleClick, the online ad company which Google promptly acquired for $3.1 billion.

One of the bigger obstacles standing in the way is that of certain Yahoo executives, such as co-founder Jerry Yang. He apparently has a reputation for disliking Microsoft and avoids using their products. The speculation is that he, along with other top executives, might leave if Microsoft acquired the company.

But Microsoft seems much more determined to see this work. Previously, managers within Microsoft’s online group pushed for the company to rely on its own online search and ad systems rather than look to Yahoo as a target. But now, several of the architects of that original implementation have left the company. And in the mean time, Microsoft CEO Steve Ballmer is under pressure to complete an acquisition so as to be a serious player in the online sphere.