Microhoo: Microsoft to Acquire Yahoo for $44.6 Billion
Chalk this one up to “seizing opportunity.” Microsoft has privately, then publically announced their intent to purchase the Internet giant, Yahoo, for $44.6 Billion dollars. Although Yahoo’s traffic has been fading (content verticals down, search volume down), Microsoft has a very high interest in the company despite this. The question is — who has the upper hand in this deal — and — how will users be affected as the deal matures?
Both companies have their strengths and weaknesses. For one, Yahoo has an awesome Web product line up. Nearly all their products are “sticky” with users, takes advantage of AJAX, and always has a smooth appeal to them. Worthy of also noting, they have decent monetization of their display ads — number one in fact according to comScore. On the other hand, Microsoft has an impressive [traditional] software business with a backing of OEMs to go along with it. Additionally, they have capital. They can do almost any project and fail, and get back up and make more money.
In a perfect world, I think it would be great if this deal meant that Microsoft would become more Web 2.0-like and Yahoo would offer a variety of traditional products and services leading to a bursting of engagement from consumers. However, this isn’t a perfect world, so I expect a lot of important decisions to be made around the products that each of the companies would offer; more than likely, Microsoft products would supersede Yahoo ones. (When you just threw $50 billion at a company, you kind of get to call the shots.)
In a battle between programming and products, Yahoo and Microsoft have different interests. I’m not sure who has the upper hand though. Yahoo has decent programming to go with their products, but a bleeding user base leaving in favor to Google and other portals. Microsoft could rejuvenate itself by loosening up a bit and offering Web-based products on the backs of Yahoo developers. I still don’t associate “programming” with Microsoft. I could see how this deal is mutually beneficial, assuming all the cards are played right.
Financially, investors are probably very giddy because it’s a win-win for both YHOO and MSFT. Worst case, you cash out and you at least have $31/share from Microsoft. However, some investors appear to be slightly unsettled as to the deal as large as this, because it ultimately depends on the execution after the dust settled. Perhaps, the synergies that may result will place Yahoo above Google someday. Then again, some believe synergies are bullshit.
Finally, how will consumers be affected? Well, unlike traditional company buyouts, they are toying with millions of user’s online identities. Because of this, how will they merge the identities into one (or will they)? I believe this will force OpenID to be a realistic, scalable application for users to take their ID with them. Microsoft’s MSNBC will likely fold into Yahoo News, their “Spaces” (blogging) service will probably take the place of Y!’s 360 blogging service, Microsoft’s Search will probably concede to Yahoo’s, ditto for their small business offerings.
2008 is definitely an important year for all the big portals since competition is becoming more aggressive. Google better keep an eye on their rear-view mirror if they want to stay ahead by a large margin.
I can’t be the only person with thoughts on this. What do you think? Share your perspective in the comments below.
~Joe
[Update 3:31AM 2/2/08] Community revolts are organizing in protest of an alleged “Microsoft Takeover.” So far, Flickr is the first.
“Who has the upper hand?”
Stopped reading there. Nothing can stop the Microsoft juggernaut (except perhaps enforcement of antitrust laws). Yahoo wouldn’t be cashing out if they thought they were in a position to make a power play. Blogging, ’social networking,’ web 2.0… these things don’t matter, what matters is getting ad clicks from casual users (i.e. grandma as she’s going to play some poker or mah jong and maybe check out the pictures from the grandkids birthday on a horrible flickr page). MS wins here because some grandmas know and love their MSN mah jong, and some of them know and love their Yahoo mah jong… now MS has the revenue stream from both and the users aren’t even going to realize the difference.
Making money from the internet isn’t like the old days where savvy users take advantage of great things and pay top dollar for them. This isn’t 1999. Well, some of that happens, but the main scheme is to oversell and take advantage of casual, unsophisticated users. Look at the ISP’s- they oversell their bandwidth, you’ve got millions of grandmas paying for a 3mbps pipe and playing mah jong a couple times a week, maybe checking their email on the holidays. They’re so used to this model that you’ve AT&T pricing out usage caps on unlimited service- you’ve Comcast shutting down those users who use too much bandwidth (even on ‘unlimited’ plans); they do this because they know that the users who take full advantage of the service they pay for is only a small amount, maybe 5%. They’re concerned with the 95% who don’t know any better- those are the people that click here for a free ipod, you know. This Yahoo deal is the same thing.
YahMic! That will be the name. $60 billion will do it.
Reading between the lines, Micro$oft is running scared of google. Guess it’s time I paid more attention to what they have to offer, and considered a move across.