• Bloomberg News, Monday, May 21, 2007 10:45 AM

In a research note last Friday, Goldman Sachs analyst Anthony Noto said Microsoft's $6 billion acquisition of aQuantive raises the likelihood that the software giant will buy rival Yahoo as Microsoft ramps up its battle for Web supremacy with Google, Inc.

Yahoo would plug a "strategic hole" for Microsoft that won't be filled by the purchase of aQuantive. Microsoft would still require another 500,000 advertisers to effectively compete against Google. Yahoo, which does not do business with new Google acquisition DoubleClick, would bring advertisers to the table, in addition to a huge user base, a wide variety of content and significant content partnerships-areas where Google couldn't realistically compete.

Noto said the aQuantive acquisition shows that "Microsoft is willing to do deals that are a strategic necessity ... we believe the odds of a deal happening over time actually increases." A buy or a strategic partnership for Web search and advertising have been part of ongoing negotiations between the companies. Several reports claim these talks have fallen flat due to reticence on the part of Yahoo. In another research note, Merrill Lynch analyst Justin Post said it will take Microsoft months to incorporate aQuantive's operations, which makes a Yahoo deal less likely in the next few months, though he sees no other potential buyer.

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