Now that I’m a distant outsider I can actually talk about my thoughts regarding this potential merger. First off – a disclaimer, I am a shareholder of Yahoo and Microsoft.

As you may know, Microsoft has been trying to acquire Yahoo for the last three months. The deal broke apart this past weekend when Microsoft offered up to $33 a share, and Yahoo wanted $37 a share. Yahoo traded at $28.67 on Friday and was originally at $19 a share when Microsoft first announced their original offer on January 31^st.

First off, as a shareholder, I would have loved the outcome to happen since I would have been personally benefited. But, taking the personal emotions out of it – here’s the business analysis for it and how it could affect you as a consumer. Microsoft needs Yahoo. As we all know, Microsoft has been a monopoly in the operating system and browser war. As of March 2008, Microsoft held a 91.57% market share in the OS War and 76% in the browser war.

Operating System Market Share

Browser Market Share

According to Comscore, in March 2008 – here’s a look at market share via the search engines.

Google has a 59.8% market share that continues to trend higher. Yahoo is at 21.3% and MSN is at 9.4%. If Yahoo decides to stay independent that means its only option will be to outsource search to Google. What does this mean? Google will have a total of 90.6% of the market share in search queries (when you add Google, Yahoo, Ask, and AOL). That would leave Microsoft in the dust with single depleting digits in the search market place.

What does this mean to the consumer? Probably won’t have a direct effect till later – since the direct effect will be faced to the advertisers that advertise on Google’s marketplace first. Yahoo believes that by outsourcing its search business it will gain as much as $1 billion in more profits annually since Google will be able to add more search queries to its market place and charge more for them.

It’s a classic supply and demand problem. Search is a very scarce marketplace – the more volume you put in it – and as the demand increases, the prices will go higher. So, how will this eventually affect the consumer? Well, the hundreds of thousands of advertisers that advertise on Google – to make a “ROI profit” – will be making less of a “profit.” And, they will eventually have to increase prices – which “YOU” the consumer will have to pay for. Not exactly, the best result especially in this economy.

Therefore, outside of personal reasons for the merger to have gone through – my business approach is that – I hate monopolies and would hate to create one so hard to break in the advertising world. Google would have too much power, and Microsoft was on the other side of the fence this time around, trying to stop this power – with the proposed transaction. It’s going to be a very interesting week for the three companies mentioned and what it means to their stock prices this week (Google, Microsoft, and Yahoo).

Tags: google, market place, merger, microsoft, monopoly, search, yahoo