A Microsoft/Yahoo merger would pose some new challenges for Google, but it'll take more than Microsoft's proposed $44.6 billion acquisition of Yahoo to knock the king of search off its throne.

Google's search market share was 58.4% in December, while Yahoo and Microsoft combined for almost 33% of the market, says Allen Weiner, Gartner's lead Google analyst. Yahoo holds 22.9% and Microsoft 9.8%, he says.

"It's not been [Microsoft's] stated mission, but under its breath Microsoft has always wanted to take on Google," Weiner says.
But there's no reason to think Google's market share domination will change, even in the face of the combined might of Microsoft and Yahoo, he says. "This is no cause for alarm for [Google]. They came into this business with no market share. Yahoo was in business before them, Microsoft was in business before them, so obviously they've done things right to become the market leader in search and search advertising."

Read Microsoft's letter.
Watch a slide show of the hottest mergers and acquisitions of 2008.
An FAQ will try to answer all your questions.

Microsoft's $44.6 billion offer might actually benefit the smaller search players Ask.com and AOL, both of which can claim to be solid alternatives at a time when the futures of Microsoft and Google are somewhat up in the air. "During say, the first quarter of this year I think there's a window of opportunity for both AOL and Ask to get some dollars," Weiner contends.
Microsoft's bid comes the same week Yahoo stock hit its lowest point in a year and Yahoo confirmed plans to lay off 1,000 employees.

Despite Yahoo's troubles, Microsoft and Yahoo together would have some unique capabilities that might pose a challenge to Google, says Jennifer Simpson, a Yankee Group analyst. While search, Google's key strength, remains a vital part of how we interact with the Internet, search won't necessarily be the "be-all and end-all" going forward, she says.

To deliver targeted advertising most effectively, companies such as Google, Microsoft and Yahoo have to look beyond search to things like social networks and other online forums that will provide a more holistic understanding of online behavior, she says

E-mail is one area that can help companies understand users, and Yahoo and Microsoft both have more e-mail users than Google, she says. Moreover, Yahoo is fostering social networks with Yahoo 360 and Yahoo Answers, while Microsoft has a Facebook alternative called Windows Live Spaces. 

"I don't know if Google has a holistic understanding of new behaviors going on online, and the concept and formation of groups," Simpson says.

While Microsoft and Yahoo together will be a more formidable competitor to Google than the companies' alone, Weiner says we won't be able to measure the real impact on Google until joint Microsoft/Yahoo products are announced.

Obvious questions include what happens to Windows Live Search, will all consumer products be delivered through Yahoo, and will the companies deliver a combined product?

Most importantly, Weiner thinks a Microsoft/Yahoo venture needs a strong leader. Microsoft CEO Steve Ballmer probably wouldn't be the guy, because he doesn't seem to be "the main influencer in the media portion of their business," Weiner says.
A Microsoft/Yahoo company "would have an enormous global footprint that needs to have a leader that will reflect that," he says.