SAN JOSE, Calif. -OBSNews.com — This week in San Jose more than 6,000 internet marketing professionals from around the world recently gathered to learn the secrets of search engines like Google, Yahoo, Microsoft, and Ask.com at the Search Engine Strategies Conference & Expo.

World Class Search Engine Optimization and Marketing Training

The week long conference provided education, hands-on training, and networking opportunities for leading internet companies and professionals dedicated to mastering the twin disciplines of Search Engine Optimization (SEO) and Search Engine Marketing (SEM).

The person most responsible for this year’s conference, Kevin Ryan, the Global Content Director for Search Engine Strategies, had this to say about the event, “even in a year in which the economy has been struggling our events are still attended well because companies understand more and more the importance of being found on search engines as an integral part of their marketing strategies.”

Insights From Search Giants Like Google and Yahoo

Noted Google engineer Matt Cutts was on hand to share his company’s perspectives and philosophies about how businesses should engineer their website content and links from other websites to ensure optimum recognition from Google’s search results.

Search Engines As a Tool For Public Relations and Media Relations

One education session that generated significant interest from participants concerned the intersection of online news and internet public relations. Lee Odden, CEO of TopRankMarketing.com ( http://www.TopRankMarketing.com) said of his fellow panelist Greg Jarboe, co- founder of SEO-PR.com ( http://www.SEO-PR.com), “Greg is one of the first SEO experts to really understand the importance of using Public Relations practices in an overall search engine optimization strategy.”

For his part, Jarboe praised Odden as an innovative SEO expert who promotes the idea of ‘digital asset optimization’ which suggests extending a search engine optimization approach to all aspects of digital media such as photographs, videos, audio clips, in addition to traditional webpage content.

The next full four day training event will be SES Chicago from December 8- 12, 2008 http://www.searchenginestrategies.com/chicago/.

By BRAD STONE and MIGUEL HELFT 

SAN FRANCISCO — People involved in relationships that end abruptly often have grossly conflicting accounts of what went wrong. On Monday, Jerry Yang gave his version. 

In an interview, Mr. Yang, Yahoo’s co-founder and chief executive, addressed Microsoft’s surprise $44.6 billion bid to buy his company and the three-month corporate tussle that ensued.

He said he was open to selling Yahoo to Microsoft all along, but that Steven A. Ballmer, Microsoft’s chief executive, and his deal makers ultimately declined to negotiate and withdrew their proposal on Saturday with little explanation.

“They chose to walk away after we put a price on the table, and they didn’t want to negotiate,” Mr. Yang said. “From my perspective, we were open all along to selling to Microsoft. We just feel Yahoo, either stand-alone or with Microsoft, is worth more than what they put on the table.”

Mr. Yang’s account conflicts with that of Microsoft’s advisers and executives. They have said that they received no counteroffer from Yahoo for three months, after Microsoft’s deadline to consummate the deal had expired. They also say that Mr. Yang and his board settled on a price of $37 a share and ultimately refused to budge.

Microsoft had raised its initial bid to $33 a share when Mr. Yang and his co-founder, David Filo, met with Mr. Ballmer and other Microsoft executives at the Seattle airport on Saturday. After that meeting, Mr. Ballmer made public a letter to Mr. Yang withdrawing the offer. “I am disappointed that Yahoo has not moved towards accepting our offer,” he wrote.

In the interview Monday, Mr. Yang and Roy Bostock, Yahoo’s chairman, said that throughout the process they were open and receptive to a merger with Microsoft. Mr. Yang said that he spent personal time alone with Mr. Ballmer but that they were ultimately unable to bridge their differences.

Mr. Yang also looked ahead to the daunting task of guiding Yahoo’s growth as an independent company — under heavy scrutiny. Mr. Yang — who last June took control of the company he co-founded, acting after the departure of the prior chief, Terry Semel — must now quickly demonstrate that Yahoo can increase its revenues and share price while navigating an online advertising industry that is quickly coming to be dominated by Google.

“I feel like we now have the task to continue to build shareholder value,” he said. “This is just creating another set of challenges we have to overcome as a company. We have to show the world the opportunity that we have been talking about for the last three months.”

One immediate problem for Mr. Yang is frustration among shareholders — including some of the largest ones. In reaction to the deal’s collapse, Yahoo’s stock fell almost 15 percent on Monday, to $24.47.

“I am extremely angry at Jerry Yang and at the so-called independent board,” said Gordon Crawford, portfolio manager for Capital Research Global Investors, which owns 6 percent of Yahoo. The firm’s parent company owns a total of 16 percent of Yahoo, making it the largest shareholder.

Mr. Crawford questioned a statement from Mr. Bostock in which he said the company was pleased that so many shareholders had supported its position.

“I would love to know who these shareholders are,” Mr. Crawford said. “It’s none of the ones that I talked to today. Everybody I talked to would have sold their stock at $34.”

“I’m hoping that there is such an outpouring of outrage that the board is embarrassed into revisiting this thing,” Mr. Crawford added, “but I’m not optimistic about that.”

Making Mr. Yang’s job even harder is the recession’s effect on the online advertising market and intense day-to-day scrutiny from Wall Street analysts and shareholders, who will view any more vague long-term plans from Yahoo’s management team with skepticism.

“Yahoo is now in a position where it has to prove its worth quickly,” said Derek Brown, an analyst at Cantor Fitzgerald & Company. “It’s as if there are many things happening behind the scenes that have given Yahoo management so much confidence. We need to see what those things are.”

Mr. Yang argued that the Microsoft bid had opened up new doors for Yahoo. “We feel Microsoft approaching us has created an opportunity for us to talk to just about anybody and everybody in the industry,” he said. He said the company would do new deals “in a way that ensures that it’s the right thing to do for Yahoo, and not because of some time pressure.”

One of those deals could be a tie-up with its chief rival, Google. In April, Yahoo conducted a two-week advertising test with Google, whereby Google served up its own more lucrative ads on 3 percent of Yahoo searches in the United States. The companies said the trial was successful and that they were exploring an extension of it, though some analysts say that could raise antitrust issues in Washington.

“Anything we might do with Google would allow us to maintain the ability to compete in what is important to us,” Mr. Yang said. He declined to say whether Yahoo would pursue such a deal.

Christa Quarles, an analyst at Thomas Weisel, said a deal with Google could have the long-term effect of strengthening Yahoo’s largest rival. “At the end of it you wouldn’t have an alternative to Google,” Ms. Quarles said. “It would be thrust into the very powerful position of being the only real provisioner of paid search.”

Yahoo might also consider tie-ups with AOL, a division of Time Warner, and MySpace, a division of News Corporation, though shareholders and analysts seem unenthusiastic about those options. Mr. Yang would not address speculation about those deals.

He did want to address what he said was a misconception: that Yahoo executives celebrated the news of Microsoft’s withdrawal and viewed it as a victory. “I was not witness to any celebration, and we do not consider it a victory. I would have been personally very happy to do a deal with Microsoft,” he said.

Mr. Yang is now left without that deal — at least if Microsoft is serious about going in another direction and closing this chapter in its history.

At the very least, Mr. Yang has impressed some in the industry with his gumption in rejecting the most highly capitalized technology company on the planet.

“It’s pretty bold to turn down a 70 percent premium,” said Peter Falvey, managing director at Revolution Partners, a technology investment bank. “Long term, do I think he should have taken it? Yes, I do. But he’s obviously got guts.”

By MICHAEL LIEDTKE, AP Business Writer

 Yahoo Inc. Chief Executive Jerry Yang has gotten what he wanted: a chance to prove his company is worth more than the $47.5 billion that Microsoft Corp. offered to buy the Internet pioneer.

It will be a daunting challenge, as Yang will be pointedly reminded Monday when investors are expected to show how little they think of Yahoo without a takeover bid on the table. Faced with resistance from Yang and the rest of Yahoo’s board, Microsoft withdrew its offer over the weekend.

Many analysts believe Yahoo’s stock price, which had climbed nearly 50 percent since Microsoft’s initial offer, will surrender most, if not all, of that gain, leaving the Sunnyvale-based company’s market value around $30 billion.

Disillusioned shareholders are bound to question whether the rejection of Microsoft’s sweetened $33-per-share offer was driven more by emotion and ego than sound business sense.

“Clearly there’s frustration,” said Darren Chervitz, co-manager of the Jacob Internet Fund, which owns Yahoo stock. “I am not even sure if Yahoo cares about its shareholders because they didn’t show much regard for shareholders’ best interests in this process.”

Despite such negative sentiment, Yahoo shares are unlikely to immediately fall back to their $19.18 pre-bid price, partly because some investors may still be holding out hope that the software maker will renew its takeover attempt if Yahoo continues to struggle.

Yahoo shares finished last week at $28.67, slightly below the $29.40 per share that Microsoft was offering before Chief Executive Steve Ballmer agreed to raise the offer to $33 per share in a last-ditch effort to get a deal done.

Accompanied by fellow Yahoo co-founder David Filo, Yang flew to Seattle Saturday to inform Ballmer that the company wouldn’t sell for less than $37 per share — a price that Yahoo’s stock hasn’t reached since January 2006.

Analysts and investors were left to wonder why the two sides couldn’t compromise at $35 per share.

“They really didn’t seem that far apart,” Chervitz said. “There is probably blame to go around on both sides, but I think most of it is in Yang’s hands.”

Monday’s anticipated shareholder backlash will put Yang on the hot seat as he tries to execute on a turnaround plan that he began drawing up nearly a year ago after he replaced Terry Semel as CEO amid shareholder angst about the company’s financial malaise.

“This squarely puts the pressure on Jerry Yang to deliver results and shareholder value,” Standard & Poor’s equity analyst Scott Kessler said. “You are going to see a lot of shareholders just throwing in the towel because they are going to realize it’s going to take awhile for the stock to get back to where it was Friday.”

Ballmer also will be under the gun to prove he can come up with another way to challenge Google Inc.’s dominance of the Internet’s lucrative search and advertising markets.

The unsolicited bid was widely seen as Ballmer’s admission that Microsoft needed Yahoo’s help to upgrade its unprofitable Internet division.

Analysts now expect Ballmer to use the money he had earmarked for the Yahoo acquisition to explore other possible deals with large Internet companies like Time Warner Inc.’s AOL and News Corp.’s MySpace and promising startups like Facebook Inc. and LinkedIn Corp. Microsoft already owns a 1.6 percent in Facebook, the second-largest social network behind MySpace.

But Ballmer is unlikely to be under as much duress as Yang because most analysts believe Microsoft’s stock price will rise Monday. The shares had declined 10 percent to $29.24 since Ballmer made the bid, reflecting concerns that the proposed marriage would turn into a complicated mess that would enable Google to grow even stronger.

Yang, 39, has promised that Yahoo’s development of a more sophisticated and far-flung Internet advertising platform will produce net revenue growth of at least 25 percent in 2009 and 2010. That would be a dramatic improvement, considering that Yahoo’s revenue rose by 12 percent last year and is expected to grow at about the same pace this year.

But analysts are skeptical about whether Yahoo will be able to hit those targets, raising the chances for a shareholder rebellion if the company stumbles during the next few months — a distinct possibility if advertisers curtail spending in a shaky U.S. economy, as many analysts fear.

As it is, Yang and the rest of Yahoo’s board almost certainly will face more lawsuits from incensed shareholders.

Even some of Yahoo’s own employees may be irritated because virtually all of them own stock options.

What’s more, Microsoft had planned to offer $1.5 billion in retention packages to the thousands of Yahoo employees it wanted to stay on after a takeover.

To help boost its short-term profits and its stock price, Yahoo is widely expected to form a long-term advertising partnership with Google.

Although the final details are still being ironed out, Yahoo wants to hire Google to place some of the text-based ads that appear alongside the search results on its Web site. It’s a task that Google already handles for scores of Web sites, including AOL and Ask.com.

Both Yahoo and Google have said they were encouraged with the results of a two-week trial run completed last month.

But turning to Google for help would be a humbling step for Yahoo after spending more than $2 billion to acquire and build its own technology.

An alliance between Google and Yahoo also would face antitrust hurdles because the two companies combined control more than 80 percent of the U.S. search advertising market.

Although Google’s superior technology would help boost Yahoo’s profits in the short term, some analysts worry it could be a mistake for Yahoo to surrender any control over such a lucrative piece of the online ad market.

Yahoo also has been exploring a possible merger with AOL’s Internet operations, but may now have to contend with a competing offer from Microsoft.

Yahoo also might attempt to placate shareholders by buying back stock.

Kessler believes Yang should use some of his estimated $1.9 billion fortune to personally buy more Yahoo stock even though he already owns 54.1 million shares, or 3.9 percent of the company.

“Jerry Yang really needs to put his money where his mouth is,” Kessler said. “If he really thinks Yahoo is worth $37 (per share), then he needs to step up and buy some shares when they are in the low $20.”

By MIGUEL HELFT and ANDREW ROSS SORKIN

SAN FRANCISCO — Yahoo on Monday reiterated its rejection of a takeover offer from Microsoft, again calling it too low.

The company was responding to a letter from Microsoft that threatened to lower the price of its buyout offer and take it directly to Yahoo shareholders.

Although Microsoft’s offer was initially valued at $31 a share, a drop in the price of Microsoft shares has reduced the offer to just more than $29 a share.

Microsoft’s chief executive, Steven A. Ballmer, raised the pressure on Yahoo’s directors on Saturday in a letter warning that Microsoft would begin a proxy fight seeking to oust them if the two companies did not reach a negotiated deal in the next three weeks.

“Our board’s view of your proposal has not changed,” Yahoo said in letter to Mr. Ballmer, which was signed by the chief executive Jerry Yang and the chairman, Roy J. Bostock. “We continue to believe that your proposal is not in the best interests of Yahoo and our stockholders. Contrary to statements in your letter, stockholders representing a significant portion of our outstanding shares have indicated to us that your proposal substantially undervalues Yahoo. Furthermore, as a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal.”

The statement added: “We consider your threat to commence an unsolicited offer and proxy contest to displace our independent board members to be counterproductive and inconsistent with your stated objective of a friendly transaction. We are confident that our stockholders understand that our independent board is best positioned to objectively and knowledgeably evaluate our company’s alternatives and to maximize value.”

Senior executives from the companies have met on two occasions since Microsoft made its offer public on Feb. 1, but they have not entered formal negotiations. Yahoo rejected Microsoft’s offer, saying it “substantially undervalues” the company.

“We are open to all alternatives that maximize stockholder value,” Yahoo said in its statement. “To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo on a standalone basis and to Microsoft, is superior to our other alternatives, and provides certainty of value and certainty of closing.”

Yahoo said in its letter Monday that board has asked Microsoft for information on antitrust issues and other matters but complained that Microsoft has failed to respond.

For its part, Microsoft has insisted it sees no reason to raise its bid, because Yahoo, which has discussed alternative deals with other companies, has no competing offers.

“Basically Microsoft infers that Yahoo has no alternative deals in the offing, therefore there is no need to raise its price,” said Michael Klausner, a Stanford Law School professor who specializes in corporate law and governance. “Microsoft still prefers a negotiated deal to a proxy fight.”

Mr. Ballmer’s letter puts pressure on the board to act quickly or face the possibility that they will fail to get the best deal possible for Yahoo shareholders, Mr. Klausner said.

But waging a battle over board seats while offering a lower price for Yahoo could prove to be a gamble for Microsoft. In recent weeks, many large Yahoo shareholders have indicated that they would favor a deal with Microsoft, at a slightly higher price. It is not clear that Yahoo shareholders would be happy with a deal at the current price, let alone at a price that is even lower.

Still, some experts in mergers and acquisitions say that without an alternative, Yahoo shareholders are likely to vote in favor of a Microsoft offer, even if it is lower.

“Although shareholders may not be happy with a move like that, in general they will support a premium bid,” said Morton A. Pierce, who heads the mergers and acquisitions practice at Dewey & LeBoeuf, a law firm in New York.

Still, Mr. Pierce says that Microsoft may still raise its bid. “Generally in situations like these, people will bump their offer to avoid the monetary and social cost of going through a proxy contest,” he said.

In his letter, Mr. Ballmer noted that in the last two months, the stock market had declined and Yahoo’s business appears to have deteriorated. He also said that Yahoo had adopted a plan to retain employees in the event of a merger that would make Microsoft’s acquisition even more costly.

“By any fair measure, the large premium we offered in January is even more significant today,” Mr. Ballmer wrote. “We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects.”

But Yahoo has disputed the notion that its business is deteriorating. In a presentation to investors in mid-March, executives reaffirmed their earlier financial projections for 2008 and put forward bullish growth forecasts for the next three years.

“This plan has received positive feedback from our stockholders, further strengthening the view that Yahoo is worth well more as a standalone company than the value offered in your proposal, and would be even more valuable to Microsoft,” Yahoo said in its statement.

Husband and wife start social networking site. Husband and wife spend a couple of years growing social networking site to eventually serve 40 million users. Husband and wife sell social networking site to AOL for $850m. Husband and wife walk away from deal with 70% of the gross payout.

Yes, Michael and Xochi Birch, a married duo - he a 37-year-old Brit, she a 36-year-old Californian - are cashing out with a hefty portion of the sale proceeds of Bebo. Roughly $600m. The second largest slice from the purchase will go to the VC firm Balderton Capital, at the sum of $140m. The Sunday edition of the Times of London has an in-depth profile of Mr and Mrs Birch, discussing their personal history and the history of Bebo. It’s a fairly interesting read. I recommend.

A few notes worth mentioning. The Birches met in London, in that classic barroom setting, after Michael graduated with a physics degree from Imperial College of London. Eyeing the dot-com world with intrigue, the Birches tried to build a startup. Which proved unsuccessful. And then another. Again, a no-go. A third attempt met a similar fate. The fourth, however, was where they got a bit more lucky. The first online business of theirs that proved reasonably fruitful was called BirthdayAlarm, “a simple service that evolved into an e-cards business.” Didn’t make too much money, on the whole, but enough for the couple to get by.

Later, Michael observed the rise of Friendster, and after taking some general cues from the site structure, he started to code his own version of a social networking website. It went active half a month later. He called it Ringo. He watched the initial membership climb to 30,000 soon after first launch. Six months later, he and Xochi sold the site, purportedly due to inability to manage its growth effectively. Sometime thereafter, Bebo has its beginning, and went live in 2005. It didn’t become an immediate hit. It was aimed at people in their 30s, which didn’t fly with Web-connected teens.

After re-tooling a bit, of course, Bebo hit its stride, and the rest, as they say, is history.

One outstanding point to emphasize in Bebo’s timeline: Its founders discovered the loyalty of the company’s staff to be very fortuitous, some of which were recruited from more veteran Web companies like Google, Yahoo, and Microsoft. (A similar story to what we regularly hear in Mark Zuckerberg’s corner of networking industry.) Indeed, they claim “few (employees) have left the company since it began.” The strength of its workforce may well have contributed to Bebo’s fortunes and success among much larger success.

By Russ Britt

Is there a method to Microsoft Corp.’s madness? The answer most often is yes.

In the case of Microsoft’s to the tune of more than $40 billion, the software giant could reap huge benefits in plain, old display advertising on the Internet.

Market demand for such ads, Yahoo’s forte, are expected to grow sharply for several reasons. Faster broadband connections open up the potential for “rich” media — defined as video or anything other than just static display.

Further, companies that have resisted Internet marketing in the past have started to, sometimes grudgingly, warm to the medium. They’re often more comfortable with display or video advertising compared with search ads, which are links generated through Web searches. In many instances, companies find display advertising more conducive to their purposes. As a result, they’re likely to stick with that method as they make the shift to online campaigns.

“It could mean a renaissance of display ads,” said Karsten Weide, analyst at International Data Corp.

This means Yahoo could gain back some of its market share against search powerhouse Google Inc. which has made a fortune largely on the back of search ads. Microsoft stands to benefit, provided it can win over the hearts and minds of Yahoo directors and shareholders. Yet Microsoft may have to move fast, as Google’s pending acquisition of DoubleClick is expected to beef up the company’s display-ad business significantly.

The search ad has become the king of Internet-advertising media in short order. Carried largely on Google’s wings, search ads have grown from 1% of market share in 2000 to 41% today. Display ads now command 21% of all online market share, having lost the top spot five years ago, according to the Interactive Advertising Bureau.

To think that market ratio could be completely reversed is unrealistic, analysts say. But ads with video and other accoutrements, as well as some search-like improvements, could help put what some call a “stupid” marketing vehicle back in the minds of online advertisers and the buying public. It also could help display gain back some traction.

“You could get to a place where display ads are better than search ads,” Weide added.

Bread and butter

Display ads have been the bread and butter of print media for decades. Conventional promotions for automobiles, department stores, clothing or jewelry qualify under this category. They usually resemble small billboards, featuring still photography or artwork along with some text.

On the Web, so-called banner promotions across the top of pages or smaller, more modular ads down the sides also qualify as display. Advertisers are charged on the basis of page views; the more Web surfers load the page where the display ad appears, the more the advertiser pays. Fees can range from $2 to $100 per 1,000 page views.

Search ads are more targeted, and can be more promising to advertisers. The most common type is seen on a Web page for Google search results. For example, a search for Callaway golf clubs will yield a number of “sponsored links” atop the page and down the right side for online distributors of that company’s product. The ads usually do not feature any art or pictures seen in display ads — simply a link headline and text.

Advertisers pay by the click, since the Web searcher is sent away by clicking their links. If there are no clicks, the advertiser often pays nothing. Again, rates can vary widely, from 50 cents to $50 per click, depending on the items for sale.

The appeal of search ads is obvious; no results means little or no expense. Plus, advertisers hone in on their targets like never before and are able to target them again in the future. The accountability of search ads is what customers find appealing, according to Rob Norman, chairman of Group M Interactive, the display-advertising unit of Group M.

“As we know, it’s conversions that pay the bills, not inquiries,” he said. “But the display ad is incredibly robust online and will stay incredibly robust online.”

Ravenous appetites

Online-display revenue is multiplying as Internet appetites grow more ravenous.

Total Internet-ad spending was around $20 billion in 2007, and it’s expected to hit $60 billion by 2011, said Randall Rothenberg, chief executive of the Interactive Advertising Bureau. The industry should see 25% compounded annual growth for the foreseeable future, he added.

“I haven’t seen anybody back off the $60 billion figure,” Rothenberg commented. “Much of that growth is coming from, and will come from, display.”

For one, display ads are taking on more of the features employed by search ads, inviting surfers to drill deeper and do more with their products. Also, display is still seen as an effective way to build brands.

That may come in handy as the old-school companies that spend a small fraction of their advertising budgets online shift more dollars toward the Internet.

A prime example is the automotive industry, which devoted 7.5% of its ad budget to online promotions last year. Most other prominent consumer companies are in the same boat, now devoting only 3% to 4% of their budgets to online campaigns.

Meanwhile, consumers are spending 20% to 25% of their time online. “Already there’s a mismatch in that gap,” Rothenberg said.

Driving the business

Rothenberg sees that changing, at least in the auto industry, which has kept a number of newspapers alive for years. The percentage of total online ads oriented around automobiles currently is about 2.6%, he calculated. That should grow to about 6.9% by 2012.

“I won’t say that’s all going into video and display. But enormous chunks of it will,” Rothenberg said. “The reason [consumer companies have] held back is they’re vested in video.”

He cites figures that show 50.5 million households in the United States were wired for broadband in 2006, or about 60% of total online homes. By 2012, that should grow to 86.3 million homes, or 89% of all online households.

The number of total online-video streams served online is growing exponentially, according to Rothenberg. There were 18 billion streams in 2005, which more than doubled to 44 billion in 2006. By 2009, that will nearly double again to 83 billion streams.

Don’t assume that all new video business will fall under the display category — or will all end up in Yahoo’s lap, said IDC’s Weide. But it’s a good bet that the richer the media, the more it will end up in display ads.

“We think [display] market share has pretty much reached rock bottom,” the analyst added. “The question is who’s going to benefit from [rich-media ads]. No one has cornered that market yet.”

(Bloomberg) — Yahoo! Inc., the world’s second most popular Internet search engine, plans to reject Microsoft Corp.’s $44.6 billion unsolicited takeover offer, the Wall Street Journal reported, citing a person familiar with the situation. The board decided the price “massively undervalues” the Sunnyvale, California-based company, and Yahoo may face risks because regulators could oppose the combination, the newspaper said today. On Feb. 1, Microsoft offered $31 a share in cash and stock for Yahoo. The company wants at least $40, or more than $12 billion more than Microsoft offered, the Journal said.

Chief Executive Officer Jerry Yang, who said this week that Yahoo is examining its options, may consider a partnership with bigger rival Google Inc. or ways to wrest a higher offer from Microsoft. Yahoo’s failure to crack Google’s dominance in search led to eight straight profit declines and cut the stock’s value in half in the two years before the offer.

“Yahoo still has one of the largest brands on the Internet,” Bill Tancer, general manager at researcher Hitwise Pty. in San Francisco, said in an interview before the report. “It confines Google to continue to grow their revenue from a single revenue stream, which is search.”

Yahoo directors, who met over the past week to weigh the offer, will send a letter to Redmond, Washington-based Microsoft on Monday that outlines its position, the Journal said.

“The board is continuing to evaluate the proposal,” Yahoo spokeswoman Tracy Schmaler said today after the report. “We’re not commenting beyond that.” Microsoft spokesmen Frank Shaw and Bill Cox didn’t immediately return calls.

Higher Bid

Yahoo is betting Microsoft won’t take hostile measures to win the bid, the Journal said, even though the software maker has indicated that is a possibility. A person familiar with the matter said this week that Microsoft may seek to oust Yahoo board members should they reject its offer.

“Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal,” Microsoft CEO Steven Ballmer said in a letter to Yahoo’s board that was made public on Feb. 1.

Yahoo rose 16 cents to $29.20 yesterday in Nasdaq Stock Market trading and Microsoft added 44 cents to $28.56.

The offer is 62 percent more than Yahoo’s stock price before the bid. The shares have climbed above the value of the cash-and- stock bid, showing shareholders expect a higher price. Microsoft plans to let investors choose cash or stock, at a ratio that will end up being about 50-50.

$34 to $37

Microsoft shares have declined since the bid, lowering the value of the stock portion and pushing the total value of the deal to about $29.08 a share. Microsoft may have to bid $34 to $37, said UBS AG’s Heather Bellini, the top-ranked software analyst by Institutional Investor magazine.

Since the bid is half cash and half stock, Microsoft may fix the offer at $31 before pursuing an increase, so the value doesn’t decline with its shares, she said.

Yahoo is getting financial advice from Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Moelis & Co., according to two people familiar with the matter. Spokespeople for Goldman and Lehman declined to comment and a Moelis representative didn’t immediately return a phone call.

Morgan Stanley and Blackstone Group LP are counseling Microsoft.

Google Possibility

Yang, 39, has resisted letting go of the company he co- founded in 1995 as a graduate student at Stanford University. Initially a way to help people find their favorite places on the Web, Yahoo became the most-visited U.S. Internet site by combining search, news, sports and finance in a single place.

He replaced Terry Semel as chief in June after Yahoo’s share of Web searches tumbled and the company lost sales of banner ads.

Yahoo might seek help from rivals, soliciting other bids or seeking partnerships with Rupert Murdoch’s News Corp. or Google to thwart Microsoft, according to analysts including Stanford Group Co.’s Clayton Moran.

The New York Times reported Feb. 4 that Google CEO Eric Schmidt contacted Yang to suggest a partnership between their companies. A partnership with Google may allow Yahoo to outsource its search service, shedding the costs of running its own search engine and sharing ad revenue with its larger rival.

Google spokesman Matt Furman didn’t immediately respond to an e-mail today seeking comment.

Regulatory Scrutiny

While a search and advertising partnership with Google is an option, it would face stiff regulatory scrutiny, Moran said. News Corp. isn’t interested in bidding for Yahoo, Murdoch said on a Feb. 4 conference call. That means Yang’s options probably won’t pan out, said Andrew Frank, a New York-based analyst at research firm Gartner Inc.

The U.S. Justice Department is “interested” in reviewing the antitrust implications of a Yahoo-Microsoft transaction, agency spokeswoman Gina Talamona said last week. Neelie Kroes, commissioner of competition for the European Commission, said her agency also would scrutinize a deal.

Google has grown faster than Microsoft in every quarter since Google’s 2004 initial public offering as its search engine won more users. Even after CEO Steve Ballmer’s efforts to build a new search engine from scratch, Google outsold Microsoft in Internet ads by 7-to-1 in Microsoft’s latest fiscal year.

Microsoft and Yahoo combined would still fail to seize the lead in Internet search. Google, based in Mountain View, California, got 56 percent of U.S. Web queries in December, which is almost double Yahoo and Microsoft’s shares together, according to New York-based Nielsen Online.

In November internet search engine rankings by comScore (NASDAQ: SCOR (NASDAQ: ), GoogleGOOG) again lead the pack, with 5.9 billion core searches conducted — a 58.6% market share of all searches in the internet. This was almost the exact same level as October.

Coming up a distant second (as usual) was Yahoo! (NASDAQ: YHOO) with market share of 22.4%. The next three were Microsoft (NASDAQ: MSFT) at 9.8%, IAC/InterActiveCorp.’s (NASADAQ: IACI) Ask.com at 4.6% and Time Warner’s (NYSE: TWX) AOL at 4.5%. In November (a seasonally weak month for web searches), U.S. web searchers conducted 10 billion searches — a 5% decline from October.

Do these rankings surprise any web surfer? They shouldn’t — Google continues to dominate internet searches and Yahoo!’s Project Panama — although technically a job well done — is probably too late to the party to put any significant pressure on Google. Microsoft’s Live Search push has garnered it about the same market share as in the past (a decent third place). The power of first-mover advantage is quite evident in Google’s placement, and I’d suspect it’s not going anywhere soon.