Updated from 3:33 p.m. ESTSAN FRANCISCO - Yahoo!'s ( YHOO) rejection of Microsoft's ( MSFT) offer could just be a lesson in Negotiation 101, but look for the Internet search veteran to take more evasive actions. The
Kemmerer doesn't see Microsoft pulling that off while focused on the integration, which would take a full year with its attendant culture-clash issues, and competition with Google. "The reality is they're fighting the battle on the wrong battlefield," Kemmerer said. He questions Microsoft's replay of a skirmish - search market share -- that it has already lost. Instead, Microsoft should have its eye on "the next big battlegrounds" -- mobile and video. Microsoft would do well to put its massive resources toward capturing the market for cell phone software and content-delivery mechanisms, such as serving video and ads to mobile phones and PCs. With Internet TV, cable networks will lose their stranglehold on video delivery, Kemmerer said. "Somebody else is going to have the opportunity to package content." Microsoft is well-positioned to monetize the opportunity with its Xbox game platform, Media Center and MSN site. "That's the battle I'd want" Microsoft to wage, Kemmerer said. For the company, that's not an either-or proposition. To its credit, Microsoft is trying to take advantage of those market opportunities. The company is well along in its efforts to integrate its Windows Mobile software with these platforms and expects to do more to serve and share content and ads among its properties and partners, such as Facebook, in which it has an equity stake. On Friday blog sites Valleywag and TechCrunch reported that Microsoft is going after Ustream.tv, a live streaming video site, for more than $50 million. According to Valleywag, Microsoft would use the popular destination to promote its Silverlight technology, a browser plug-in for video and animation that competes with Adobe's ( ADBE) Flash player. On Monday, Microsoft said it will acquire mobile Web services provider Danger, which supplies software and on-demand Internet access to Sharp and Motorola ( MSFT) handsets through operators such as T-Mobile. Danger's revenue grew 14% in fiscal 2007, to $56.4 million. Its hosted service provides Internet browsing, email, messaging and premium content to cell phones. Danger, of Palo Alto, Calif., had filed in December its intent to go public. Terms of the buyout were not disclosed. Microsoft isn't the only giant with vulnerabilities in the ever-changing search game. Google, whose standing as the search and online advertising leader is usually viewed as impenetrable, "is a one-trick pony," according to Nick Patience, managing analyst at the 451 Group. Google's "revenues are always 99% advertising," with other services adding the remaining 1%, Patience said. "They should be worried about somebody going after their core business," he added, regarding Google's public and private efforts to derail a Microsoft-Yahoo! merger. Like many analysts, Patience does not see antitrust issues preventing the merger. He compared it to Oracle ( ORCL), No. 2 in the middleware market after IBM ( IBM), buying No. 3 BEA Systems ( BEAS), a deal that has not yet cleared regulatory scrutiny. He also cited Oracle's earlier buyout of PeopleSoft to go up against SAP ( SAP), which was No. 1 in human resources software. Microsoft's argument will be that Google, in terms of search-based advertising, is much farther ahead, Patience said.