Microsoft v Google – When clouds collide

The collision of two clouds is a gentle affair — except, that is, in the digital skies of the technology industry. But such a virtual collision is the best image to keep in mind when trying to understand why Microsoft, the world’s largest software company, has bid a whopping $44.6 billion for Yahoo!, an ailing online giant. As computing moves online, the sources of power and money will increasingly be enormous “computing clouds”, as the cognoscenti call them, hosted on the internet. The Yahoo! deal is mainly about inflating Microsoft’s cloud so that it can at last match that of its most dangerous rival, Google.To be sure, the merger, which would be the internet industry’s biggest since the ill-fated union of AOL and Time Warner in 2000, is far from a done deal. As The Economist went to press, Yahoo! had yet to reply formally to the offer, other than to say that it was considering it. Indeed, its management, which has spurned previous overtures from Microsoft, is said to have been looking into alternatives to the takeover, including selling off some units and even considering an alliance with Google. A rival bid is possible, but so far no one appears inclined to enter into a bidding war with deep-pocketed Microsoft; its offer values Yahoo! at $31 a share, a 62% premium over its closing price before Microsoft’s bid was made public. And then there is the inevitable antitrust review, which promises to be lengthy, particularly in Europe.

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