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Yahoo! is to become the world's second biggest online recruitment business, following the successful snatch of HotJobs from the hands of TMP Worldwide.

Yahoo! made a surprise eleventh hour $436m cash-and-shares bid for Hot Jobs, trumping an agreed offer from TMP, owner of Monster.com, the world's biggest online recruitment business.

Yesterday, TMP said it would not raise its offer, effectively withdrawing its hat from the ring. HotJobs will pay the company $15m and $2m in expenses for terminating the agreement.

This year's downturn in online advertising in the US has brought home the vulnerability of even the biggest banner ad-led biggest portals. Yahoo!'s response is to target an increase in non-advertising revenues to 50 per cent-plus of turnover, up from 20 per cent today.

It appears to show little interest in building a substantial Web-access business, which, if done correctly, transforms the economics of running a major portal. Neither does it seem terribly keen on getting into the publishing business, AOL-style. So the obvious alternative strategy is to transform itself from an advertising platform for others into a dealer on its own account.

By acting as principal rather than intermediary, Yahoo! can bulk up on turnover and profits and ensure more predictable revenues. A strong balance sheet means that the company should be able to comfortably cover extra working capital needs.

The downside is that the company risks alienating advertisers - presumably rival job boards will lose their appetite for advertising with Yahoo! While Yahoo! maintained its own job board before the HotJobs purchase, this could not be said to be a threat to mainstream players.

However, the sheer size of HotJobs, and the discrete quality of online recruitment will ensure that, on this occasion, risk is minimised for Yahoo!. It can afford to shrug off advertising losses on this score. ®

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