Microsoft Figures Yahoo May Finally Be Desperate Enough To Sell

from the embrace,-extend...-extinguish dept

Fri, Feb 1st 2008 8:57am — Mike Masnick

It seems that in the first half of every year there are some rumors that Microsoft might want to buy Yahoo. We heard it in 2006 and again in 2007. Now that it's 2008 and Yahoo is looking incredibly vulnerable, having just announced weak earnings and plans to layoff 1000 employees, and given their lack of a serious strategy, Microsoft has finally decided to take the plunge, making a somewhat unsolicited $44.6 billion bid for the company, representing a rather large 62% premium on the company's current valuation. This seems like a move both companies have to make, as a hail mary shot at coming up with something that can actually compete with Google. Going it alone hasn't been working. Both companies have been trying all sorts of tricks to get back in the race, without much success. Both seem to be living off a legacy past, but are unable to excite many new users. Microsoft has shown some signs of moving up the chart, but Yahoo has been steadily listing in the other direction. Combining the two gives them scale, but it'll still take a lot of work and has a high likelihood of failure. Merging two huge companies like this is not an easy thing at all, and could very well be distracting enough to actually help Google gain even more ground. However, given how little either has been able to seriously dent Google's momentum, it seems that they need to give this a shot.

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Filed Under: acquisitions, mergers, online advertising
Companies: microsoft, yahoo

26 Comments

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Lucas, 1 Feb 2008 @ 9:28am

Wow great analysis.
You should be on a BoD somewhere, Mike.

Google and Microsoft are completely different product structures. There is this notion that Microsoft fears Google or is trying to directly compete. This is only partly true. Microsoft is diversifing their strategy, elements include digital media, home and office electronics and server hardware, operating systems and other software, games and websearch and ad revenue. Google would represent only a partial section of Microsoft's total business plan. People need to stop looking at stock prices and start looking at market shares, volume, revenue, worldwide reach and brand recognition.

In many countries of the world, Yahoo! outpaces Google in the search race. You need to do your homework and research, as well as understand this economy is a global one, and realize this may not be such a bad buy. Maybe some CFO at Microsoft knows more about mergers and acquisitions than a Techdirt blog editor?
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James, 1 Feb 2008 @ 9:33am

Huh?
Whats Yahoo?
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LMAO, 1 Feb 2008 @ 9:35am

-1 + 0 = Good Strategy?
Brilliant move. Buy a declining property at a premium. M$ would be better off waiting six months to buy Yahoo at a discount rather than a premium.
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Ethan Bauley, 1 Feb 2008 @ 9:38am

Can we forsake the phrase "Go it alone"?
Especially after it's use vis-a-vis the Iraq war...and considering it's a grammatical nightmare...can we put this one to rest s.v.p.?

;-)
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comboman, 1 Feb 2008 @ 9:45am

won't work
I don't use Yahoo's search engine but I do use Yahoo for web mail (I've had the account for over ten years). If I have to switch my yahoomail account to an MS hotmail account, I'll be dumping it for gmail.
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Novernetsbandit, 1 Feb 2008 @ 9:59am

Its a good move for yahoo to bail
I would like to see yahoo keep there name but use the MSN search features. Yahoo is expensive for adding your company to there search where google/msn is free!
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Denny Ferrassoli, 1 Feb 2008 @ 10:07am

Hrmm...
MS should be looking at innovative search engine companies rather than Yahoo... They can't out-do the Goog and when MS buys them they won't be gaining anything from it except for the fact they can say "we have now gained 12% market share bringing us up to a whopping 15%" compared to Goog's 77%. (according to: http://marketshare.hitslink.com/report.aspx?qprid=4)

MS should focus on beefing up their algorithms (or completely throwing out the old ones) and implementing new technology.
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Thom, 1 Feb 2008 @ 10:24am

Microsoft's problem
Microsoft doesn't make headway against Google because every change they make to their sites or strategies involves using and/or leveraging another one of their "technologies".

Google's offerings are small and sleek or, in youtube's case, ugly but easy to use. In either case pages themselves are small, quick to load, and fast to render. Microsoft's however are huge, complicated, slow to load, sluggish to respond, and are always using some technology they want to showcase and sell.

Let Microsoft buy Yahoo. If they do it'll end up so burdensome to use that Yahoo will finally vanish and Microsoft will get a, by then, $100 billion writeoff. All I'll miss is my yahoo email address.
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Anonymous Coward, 1 Feb 2008 @ 10:51am

Google and Yahoo should buy Microsoft
Enough said!
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arrg, 1 Feb 2008 @ 10:55am

Don't get it
I'm no economist but I can't see why this is a good idea. Yahoo was great when it started but is dieing a slow death, just like AOL did. So why would MS want to buy a dieing company. If it's for the name, well... you can see what good that did time warner.. I think this will be MS's AOL, but it makes even less sense than the TW AOL merger.. I mean basic math says if you spend 44 billion then you are hoping to make more than 44 billion as a result. I don't see them making 44 billion off of buying Yahoo.. Otherwise Yahoo wouldn't need to be selling itself...
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Steve R. (profile), 1 Feb 2008 @ 10:57am

Failed Synergies
Does history repeat?
Time-Warner/AOL ---> Microsoft/Yahoo
History does repeat!
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Same as before, 1 Feb 2008 @ 11:20am

So apparently-
Techdirt does not publish comments from well informed individuals with market experience if those comments disagree with the article or dont agree with the Microsoft-is-dead school of thought.

The irony? This certainly won't be published, I just hope the comment filters see it.
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John, 1 Feb 2008 @ 11:56am

Yahoo may have gotten to big, but it can be profitable with new ownership.

I think this is kind of like GE to NBC. Whether that is good or not...
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CHL Instructor, 1 Feb 2008 @ 12:17pm

Yahoo Groups
I guess I'm gonna miss Yahoo Groups. Oh well, I've seen a few of them die under the spam load, and migrate to private fora, so I guess my favorites will do the same.

Nice knowing you, Yahoo. Too bad it didn't work out.
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chris (profile), 1 Feb 2008 @ 12:53pm

oh the analogies
most of yahoo's infrastructure is built on freeBSD and python while MS is a proprietary software company. that's like mixing oil and water.

i used hotmail when it was it's own service, before it was purchased by MSN and became a giant commercial for MSN. i switched to yahoo when their community was cool, before they are overrun by bots and spammers. if MS buys yahoo it's like the two ugliest people at the party hooking up out of sheer desperation.

if yahoo really is on the rocks, and ms is getting it's clock cleaned by google, buying yahoo at a 62% premium is like pouring water on your head because your ass is on fire.
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Mike (profile), 1 Feb 2008 @ 1:10pm

Re: Wow great analysis.
You should be on a BoD somewhere, Mike.

I am, actually. Thanks, for the offer.

Google and Microsoft are completely different product structures

Yes, for now.

There is this notion that Microsoft fears Google or is trying to directly compete

That's not a notion. It's factual. We never said that they compete totally against each other. Of course they have many lines of business that don't compete directly. However, Microsoft does realize that its *growth* strategy needs to involve search and ad revenue. And, on that front, Google has beaten them soundly. Microsoft recognizes that it's other businesses don't have nearly the same growth potential.

Google would represent only a partial section of Microsoft's total business plan. People need to stop looking at stock prices and start looking at market shares, volume, revenue, worldwide reach and brand recognition.

Indeed. I'm not sure why you think we haven't done so.

In many countries of the world, Yahoo! outpaces Google in the search race.

Yes, that's absolutely true. I don't think anything we said goes against that. However, at an absolute level, Yahoo has not been able to grow at nearly the pace Google has. Google has aggressively been able to grow and has been aggressively working to beat Yahoo around the globe. No, they're not there yet in many areas, but it doesn't change the trend lines.

You seem to think that a single snapshot is more useful to look at than the trend lines. I find that a troublesome way to analyze businesses.

Maybe some CFO at Microsoft knows more about mergers and acquisitions than a Techdirt blog editor?

Oddly, I'm a lot more positive on this deal than most analysts right now, so I'm not sure why you'd say that. However, I think we'll see in a few years how successful this deal turns out to be. I think MS had to do it, but I think it's going to be extremely difficult to pull off.

I'm sure that AOL's CFO knew a lot more about mergers and acquisitions than I did when it bought Time Warner. And that failed. There are plenty of mergers that fail, no matter how much the CFO of a company knows.
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Vincent Clement, 1 Feb 2008 @ 1:40pm

Re: Its a good move for yahoo to bail
I think the Yahoo! name will be kept for search and related features. Every time I hear or read MSN, I keep thinking of a TV network.
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Mike (profile), 1 Feb 2008 @ 4:05pm

Re: So apparently-
Techdirt does not publish comments from well informed individuals with market experience if those comments disagree with the article or dont agree with the Microsoft-is-dead school of thought.

Um, have you been around Techdirt before? We ALWAYS publish every comment that isn't spam. Almost every article has comments from people who disagree with us.
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Anonymous Coward, 1 Feb 2008 @ 4:08pm

Re: So apparently-
So this has to be that one asshat who started off with a great intellectual debate with Mike in the comments a while back, but posted resonses rapidly and got his message sent through the filters to make sure it wasn't spam.

Wonder if the moron will learn that any posts in HTML also get sent through the filters to make sure they aren't linking maleware and the like?

Probably not. He'd rather believe that some random (but growing in popularity) blog is 'censoring' him.

Sorry guy, your just a paranoid sap. Be nice if you went back to making interesting posts rather than trying to insinuate your being 'watched for' by people who don't care enough to.

If they were censoring YOU they'd sure as hell block 'angry dude' and 'dorpus' who regularly attack the blog for no apparent reason. But they haven't yet.

You poor delusional fool.
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Quantity Surveyor Man, 1 Feb 2008 @ 4:59pm

Somehow not a surprise.
With Microsoft's mantra for Vista being "Quality is overrated" it seems like a good match to buy YaWhore. Their mantra is "Quality is on our list, right after polishing the lawn."
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Dohn Joe, 1 Feb 2008 @ 7:48pm

2 Wrongs Don't Make a Right
So a large software company making bottom-of-the-barrel software will merge with a large internet search company providing bottom-of-the-barrel search...and this will somehow compete with Google? I just hope my YAHOO Games still work from my Linux box once the dust settles!!

For those who have not been in the industry very long and would like an idea where this will go consider the following:
Hotmail was once upon a time competitive, innovative, popular by choice (as opposed to being crammed down everyone's throat), and wildly successful! Then Microsoft bought it...
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Bake, 1 Feb 2008 @ 7:52pm

Ain't that the truth...
Yup...I used to have a hotmail account once. Abandoned ship and moved to YAHOO Mail the day the press release about Microsoft buying it came out....looked back a couple of times and was glad to know I made the right choice.

Looks like it's time to dust-off my life-preserver and dinghy 'cuz it looks like we'll be paddling to the shores of GMail soon!
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Truth, 2 Feb 2008 @ 9:59am

Microsoft is looking to strangle FreeBSD
Naw, the goal is for Microsoft to hurt FreeBSD. Yahoo! has funded much of the FreeBSD development and if Microsoft can put a bullet in FreeBSD such would hurt Apple and remove a jump point From GNU/Linux when Microsoft finally does lay the smack-down on GNU/Linux.
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Anthony Barnett, 2 Feb 2008 @ 11:07am

What it will mean
There is a great post about this by Tony (my colleague and openDemocracy Ed-in-Chief) here
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Anonymous Coward, 3 Feb 2008 @ 12:53pm

Re: won't work
Switch your Yahoo mail to gmail. I did after 10 years on Yahoo and I haven't regretted it for a second. Gmail is a superior product and I don't get spam mail in my inbox - ever.
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Alimas, 4 Feb 2008 @ 6:43am

Good Move
I no professional on this, but...
A lot of people on here say that Microsoft merging with Yahoo! is kind of like two wrongs not making a right, but I believe thats looking at it through the wrong perspective.
Microsoft doesn't want Yahoo! so they can have the website yahoo.com, they want it to get its' share of the market. And as Yahoo's followers are bleeding away to Google rapidly, it is a good idea to grab it quickly.
I think this is probably the best way for Microsoft to get its way not just against Google, but onto the net at all. Who the hell uses msn.com?
I bet the Yahoo! name and search function is maintained but the msn sites purpose is redirected to complimenting the Yahoo! site.

I've got both Yahoo mail and Gmail and its hard to say which is better since Gmail hides the sender's IP and has a strange e-mail organization pattern but Yahoo! wants me to pay for POP3 access and gives me tons of junk mail.
Maybe Microsoft will fix all that.
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