Sunday, May 07, 2006

Report: Microsoft feeling heat from Google

NEW YORK (Reuters) -- Microsoft Corp. has held discussions to buy a stake in Internet media company Yahoo Inc. to compete against Google Inc., the Wall Street Journal reported on Wednesday.

Although talks over an equity stake do not appear to be active, Microsoft's top management remains open to a deal with Yahoo as pressure grows from shareholders to perform better against Google, the newspaper said, citing people familiar with the situation.

Microsoft and Yahoo have discussed possible options over the past year, the newspaper said. Microsoft could sell its MSN online network to Yahoo and take a minority stake in the Internet portal, it said.

Microsoft declined to comment on the report and a representative from Yahoo could not immediately be reached.

Last year, Microsoft had been negotiating to strike a partnership with Time Warner Inc.'s AOL Internet unit, but was shut out when Google agreed to invest in a 5 percent stake in the AOL. Microsoft had been in talks with AOL to use its search technology, which would have given the software giant's fledgling paid-search business a big boost.

Microsoft's earnings outlook last week fell well short of Wall Street expectations, as the company signaled more investments for its software services business.

Analysts said Microsoft planned to spend an additional $2 billion in the coming fiscal year starting July 1, speculating that much of that investment would go toward building an ad-supported online service business.