A Google/Microsoft Union?

Tina Reilly
MOUNTAIN VIEW, Calif. – On the heels of hinting at a possible Initial Public Offering (IPO) last week, popular search engine Google Inc. revealed today that it has been in talks with Microsoft Corp. over a possible union.

According to reports, Google and Microsoft began their corporate flirtation several months ago, although nothing has yet been confirmed and both sides are being extremely coy about the outcome.

The possible marriage, as unlikely as it seems, could be suitable for both industry players, analysts are saying. Microsoft has been looking for entry into the lucrative advertising search space for some time now, and Google, which has profited hugely from of its Adwords search service, is looking to solidify its image as one of the Internet's major players.

Google recently purchased Primedia Inc.'s online advertising unit, making its position as one of the leaders in pay search results even stronger. Google will also supply ads for Primedia's websites, including its About.com sites.

Google's rapid financial success over recent years has raised the bar among similar services, including Overture, which is owned by Yahoo!

But Microsoft's courtship has so far had little effect on Google, which has since made a public stint of talking with several investment bankers, including Morgan Stanley, Goldman Sachs, and San Francisco-based W.R. Hambrecht & Co., regarding an IPO via an electronic bidding auction that would make Google shares available to a huge cross-section of small shareholders.

With an IPO valuation of somewhere between $15-25 billion, Google hinted that its IPO could happen as early as next year.

According to analysts, an electronic offering could make Google immune to the same investment banking scandals that have rocked the financial world in recent years. An electronic auction system would also cut underwriting costs significantly.

Google is reportedly considering selling about a 10 to 15 percent share stake to the public, which is expected to raise more than $2 billion for its employees, venture capitalists, and early investors.

The electronic auction route is said to appeal to Google's founders, Sergey Brin and Larry Page, two Stanford graduates who founded the search engine in 1998.

But despite Google's rumored indifference to Microsoft's advances, a possible union with the computer giant could create a formidable industry powerhouse in the search technology sector.

However, if Google goes public, only strengthening its already firm foothold in the search engine and paid search space, Microsoft could find itself the weakling competitor.

When contacted by XBiz, both Microsoft and Google representatives refused to comment, although industry analysts are saying that Microsoft is not one to take no for an answer and will undoubtedly return for a second try at Google.

Google was also in talks this week with Friendster, a Silicon Valley-based dating site. The search engine made a $30 million bid to buy Friendster but was rejected in lieu of a $13 million investment from a group of venture capital firms.