News 

Both Microsoft and Yahoo have struggled to match Google's dominance in search and online advertising. Microsoft claims this deal will help redress the balance.

"Today, the market is dominated by one player," said Kevin Johnson, president of Microsoft's platform and services division on a conference call to announce the deal. "The industry will be better served by having a more credible alternative in search and advertising."

Microsoft CEO Steve Ballmer said the deal represents "the next major milestone in Microsoft's company-wide transformation to embrace online services."

"If

ADVERTISEMENT

you look at Microsoft and Yahoo, we really do share a vision for online services and advertising, in particular," he said.

Ballmer confirmed reports that the companies had been in talks for 18 months, and said that Yahoo turned down an approach last year because the "time wasn't right."

"It's a decision we've thought, and I personally have thought, long and hard about," he added.

Merging brands

Large technology mergers have a history of failure, but Johnson claimed that this deal would be different because "this is a business that has scale economies in a few key areas," most notably search, data centres and back-end infrastructure.

However, there is great deal of duplication in the online services offered by both companies, including search, webmail and social media applications. Ballmer admitted that the two companies are yet to work out precisely how they will merge the public face of the two brands. "The Yahoo brand is a great brand," he said. "We want a joint leadership team to work through the specifics on this. We're going through a thoughtful process with the leaders of both Yahoo and Microsoft."