The real reason Microsoft want to acquire Yahoo is due to the fact that they want to get their hands on the ”361 patent”. A patent which Yahoo obtained when it bought paid-search company Overture and a deal which Microsoft could have had themselves, had Bill Gates decided to go through with the deal.

The “361 patent” allows advertisers to bid to place ads against keywords and if it wants to damage Google and its multi-billion revenue engine then acquiring Yahoo (with the 361 patent) makes perfect sense. 

This explains the fact that even when the offer was rejected Microsoft keeps going back trying to acquire Yahoo or at least Yahoo’s search portfolio which includes the “361 patent”.

This also explains how Microsoft adCenter had a roll out delay which is because, Yahoo refused to license the “361 patent” to Microsoft on terms agreeable to Microsoft and this is why Microsoft had to launch adCenter outside the US first where the “361 patent” is not enforceable. 

It also suggest the reason why Microsoft are neglecting its paid search operations because, the size of the royalties which Yahoo are forcing is causing Microsoft to neglect its paid search operation in order to minimize payments and to minimize the size of an eventual settlement with Yahoo.

Another reason Microsoft would want to acquire Yahoo is because, if it gets hold of the “361 patent” via acquiring Yahoo or Yahoo’s search business they could revoke Google’s license and thereby put billions of dollars at risk and killing Google’s share value. 

However, the revoking of Google’s license would be hard to see happen because, I don’t think that the Google executives would risk massive fraud lawsuits by hiding such a big vulnerability. Although this is still a possibility until the terms of the license are revealed.

What it certainly explains however, is why Microsoft keeps trying to acquire Yahoo and why Yahoo are persistentally insisting it’s undervalued. However, the question we need to ask is would Microsoft really offer $45 billion of shareholders’ money to destroy a rival?

Update: I should say that this is only a theory. However it does seem to make sense.

If you enjoyed this post, make sure you subscribe to my RSS feed!