Microsoft wants Yahoo, Yahoo wants independence, Google wants more of the same
By Danielle on February 7th, 2008Microhoo. Or would it be Yahrosoft? Either way, unless you’ve been living under a rock the past few days (with the only metaphorical rocks netting you a reprieve in this case being: a) the huge upset that was Super Bowl XLII, or b) the intense political race surrounding Super Tuesday), you’re most likely aware that a merger between software and internet superpowers Microsoft and Yahoo! has become a genuine possibility. Well, at least in the eyes of Microsoft.
People have been sounding off about the topic since last Friday, when Microsoft publicly announced its offer to buy Yahoo for $31 a share (or a 62 percent premium over the closing price of Yahoo’s common stock on January 31, 2008—which was $19.18 a share). That’s a $44.6 billion unsolicited bid. While there may be various motives behind Microsoft’s ongoing effort to acquire the struggling Yahoo, one obvious reason would be to better its positioning against Google in the U.S. search market. Combining the current stakes of Microsoft and Yahoo in this market would equate to around a 32 percent share, creating a much more formidable threat to Google’s existing 58 percent hold over the marketplace. Microsoft would also like to gain stronger footing in the online services and paid-search advertising industries, and Yahoo’s customer appeal and current operations would certainly help Microsoft to accomplish these goals.
This clear and present danger to Google’s reign is why the corporation will likely play a role in whether or not this MFST/YHOO union actually happens. While Google can’t outright buy Yahoo (it would violate antitrust laws), the company is more than capable of stirring up some trouble. Yahoo can also avoid being acquired by Microsoft by outsourcing its search advertising to Google, as this move would rejuvenate Yahoo’s cash flow and appease company shareholders (who must at least be tempted by Microsoft’s generous $31/share offer).
Outsourcing to Google would provide a hit to Yahoo’s pride, but teaming up with Microsoft is what one Yahoo engineer describes as “the frosting on a giant double-layer suck cake.” I’m not sure what that even means, but it doesn’t sound pleasant. The financial breakdown of the merger makes sense for Yahoo, and its shareholders especially, but integrating an independent, free-thinking operation such as Yahoo into a well-oiled machine like Microsoft is anything but a natural process.
The truth of the matter is, Yahoo has been in a gradual downfall for a few years now, and some internal changes will have to be made for the company to have any chance of rebuffing Microsoft’s advances. According to a BusinessWeek article that ran yesterday, the only options that Yahoo has left at this point are 1) to outsource its advertising to Google, 2) to secure a private equity partner to fund Yahoo’s going private, 3) to seek out a white knight (or a more tolerable company to submit to than Microsoft), or 4) to swallow a poison pill…which will presumably end in shareholder lawsuits.
I try my best not to lift quotes from TechCrunch for most of the posts that I write (we all know that it would be easy), but I felt obligated to include this wrap-up of the situation posted by Michael Arrington yesterday. Eloquent, yet cynical, in a word…perfect:
Whatever happens, the salad days for Yahoo are long gone. 2008 will be the year Yahoo ceased to be one of the big independent Internet heavyweights. They’ll almost certainly become an operating subsidiary of Microsoft, or Google’s whipping boy. And if by some chance the government puts a stop to either deal, they’ll have a short reprieve before facing similar decisions next year or the year after. The world is an unforgiving place. Yahoo is cute, cuddly and likable, but they did not execute the way Google did. And because of that they are quickly turning into collateral damage in an epic war that is really just beginning between Microsoft and Google.
Does anyone else feel like they are trapped in a Dungeons & Dragons game gone dangerously awry? Just saying, Bill Gates would make one menacing Dungeon Master.
