Microsoft estimates that the online ad industry will double within three years to $80 billion from $40 billion in 2007.
In a letter to the Yahoo! board of directors Microsoft described a bright future for the combined entity because of scale and combined engineering resources. The merger would also save $1 billion in annual operating costs because of synergies between the two groups. However, it warned that neither company had the "engineering scale" on its own to create "breakthroughs in search, and new advertising platform capabilities."
Microsoft has been buying advertising network companies. In the summer of 2007 it acquired AdECN, which operates an ad exchange.
But its ambitions in online advertising have been hampered by its inability to improve traffic to its search service. The most recent numbers from Comscore, which monitors search market share, showed that in December 2007, Microsoft held 9.8 per cent of the market, unchanged from November 2007. Yahoo! managed to slightly increase its share by a 0.5 percentage point over the same period to 22.9 per cent.
Yahoo! would be able to provide Microsoft with the traffic volume it needs if it is to grab a significant share of the online ad market boom.