Culture Clash Could Doom Microhoo!

from the internal-frictions dept

We don't link to anthropologists much on Techdirt, but Grant McCracken recently wrote a really interesting post on the cultural dimension of corporate mergers. McCracken points out that culture matters a lot in a company's success. Every really successful firm succeeds by developing a distinctive corporate culture that boosts productivity by giving employees a shared set of assumptions about how to do business. In many cases, employees become like the proverbial fish in water: the corporate culture is so pervasive that the employee barely notices it. In other cases, employees explicitly debate the meaning of their shared corporate identity: Google employees commonly debate the most "Googly" way to approach a particular problem.

When two firms merge, the existence of a shared corporate culture can no longer be assumed. Differing cultural assumptions among employees are likely to produce new frictions. One company might be more bureaucratic, work longer hours, have different procedures for evaluating new products, or have any number of other differences in the way they do business. Any of these disagreements can be a barrier to the smooth functioning of the merged company. If the two separate firms are to become a single, organic one, management must find a way to convince employees of the acquired firm to embrace the culture of the acquiring firm. If they fail, the company will limp along with simmering disagreements over strategy and tactics. That was a big part of the problem with the AOL Time Warner merger, for example.

These kinds of cultural assumptions are particularly important in the software industry, where success is often driven by the ability to recruit and retain the most talented programmers. One of Google's key advantage over the last few years has been the perception that it's a more cutting-edge place to work than Yahoo! or (especially) Microsoft. Many smart programmers view Microsoft as too big, bureaucratic, and slow-moving to develop really innovative products, and since they want to work on hot new technologies, they often go elsewhere. Acquiring another multi-billion-dollar company is likely to exacerbate this perception, especially if it causes some of Yahoo!'s best programmers to jump ship in the process.

Filed Under: culture, mergers, software development
Companies: microsoft, yahoo

Competition Isn't War

from the scorched-earth dept

Ben Worthen theorizes that Microsoft is acquiring Yahoo not to increase its own profits but to damage Google. Worthen is suggesting that by slashing prices for its ads, Microhoo could "chip into Google’s profit center," slowing down Google's expansion. I haven't talked to Steve Ballmer about this, but I really doubt this what he has in mind. In the first place, it's not clear that aggressive price-cutting by Yahoo! would even hurt Google that much. Aggressive price-cutting only hurts your competition significantly if you've got enough inventory to satisfy the market at the new, lower price. But Yahoo! has significantly fewer eyeballs than Google, so even if Yahoo! gave away its ads for free, there would still be a lot of unmet demand that Google could cater to. Secondly, trying to "chip away at" Google's ad revenue seems like exactly the wrong way to attack Google. Google has plenty of cash on hand, and its still-astronomical share price makes it easy to raise more. Google employees have told me that the limiting factor for the company at the moment isn't money but the ability to recruit new employees.

More fundamentally, the war metaphor is misleading in this kind of discussion. In a competitive market like this one, companies make profits by creating value for their customers. Especially in a growing market like this one, there isn't a fixed pie to be divided. So there's no reason to think that lowering Google's profits would improve Microsoft's fortunes. Microsoft should acquire Yahoo! if the combined company will be more profitable than they would be separately. Obviously, competition with Google is a big factor to consider, but it gets things backwards to view hurting Google, in and of itself, as a win for Microsoft.

Filed Under: deals, mergers, value, war
Companies: google, microsoft, yahoo

Isn't Yahoo! Management Supposed To Work For Its Shareholders?

from the that's-what-I-thought dept

I've been puzzled by a lot of the coverage of the Microsoft-Yahoo merger talks. Take yesterday's write-up of the story in the New York Times, for example. The article starts off talking about Yahoo!'s efforts to "avoid defeat in its battle with Microsoft." If I were a Yahoo! shareholder, I'd be pretty unhappy that things are being framed that way. Yahoo! management has a fiduciary responsibility to me, the shareholder, to maximize the value of my investment. Yahoo! management ought to be excited by the idea of a deal where shareholders get paid a big premium for their shares. Of course, if Yahoo! can get an even better offer from another company, or use the threat of going elsewhere to get a bigger offer from Microsoft, that would be great. But the types of machinations described in this article sound more like Yahoo! management trying to hold onto their jobs than anything else. It's hard to see how shareholders benefit from delaying the shareholders meeting in order to prevent Microsoft from starting a proxy fight. If shareholders don't think Microsoft's offer is fair, they're free to vote it down. Likewise, a deal with News Corp or AOL might make business sense, but unless it causes the price of Yahoo! shares to rise higher than Microsoft's current offer, it's not clear why those deals would cause shareholders to reject the Microsoft deal. More generally, I think it's misguided to describe this type of negotiation as a battle to be won or lost by Yahoo! "Losing" in this case means Yahoo! shareholders get paid a big premium for their stock shares, while "winning" would, I guess, mean the deal falls through and Yahoo! shareholders don't get a big payday. That seems backwards to me.

Filed Under: fiduciary responsibility, mergers
Companies: microsoft, yahoo

TomTom's Attempt To Buy Tele Atlas Gets Even More Complex

from the thanks-EU,-you've-made-Garmin-happy dept

You may recall just how well GPS-device maker Garmin played the acquisition game last last year, forcing its main rival, TomTom to spend much, much more than originally intended in a deal for map maker Tele Atlas. Every step that Garmin took seemed to work to its advantage, first raising the bid for Tele Atlas, forcing TomTom to nearly double its bid, then buying up some Tele Atlas shares on the open market so that it's actually making a profit when it sells those shares to TomTom, and finally signing a long term deal with Tele Atlas competitor Navteq (which Nokia is acquiring). Following all this, Garmin must be giddy to find out that the EU has objections to the TomTom purchase which will force the company to make concessions. These objections won't scuttle the deal completely, but will (of course) make it somewhat less than what TomTom hoped it would be. Garmin must be thrilled.

Filed Under: conditions, eu, mergers
Companies: garmin, tele atlas, tomtom

And So We Wait Some More For XM And Sirius To Merge

from the how-long-will-it-take? dept

The Justice Department and the FCC sure are taking their sweet time on approving (or denying) the XM/Sirius merger. The two companies' merger agreement was about to run out, so they've now had to extend it a few more months as they wait patiently for the government agencies to figure out whether or not satellite radio is a unique market or if it actually competes against other forms of audio entertainment. It's hard to justify what could possibly be taking this long. Terrestrial radio stations, as represented by the National Association of Broadcasters, have been the most vocal against the merger, claiming that to allow the merger would create a monopoly in satellite radio. However, the very activity of protesting the merger suggests that they know that satellite radio isn't an independent market and actually does compete with terrestrial radio. Still, the NAB must be thrilled it's been able to hold off the merger approval for this long, even if it eventually does get approved. The real question, though, is whether they've done anything else to try to compete with satellite radio, or if they're just hoping that the miracle of a blocked merger will simply force the satellite competition into bankruptcy.

Filed Under: fcc, mergers, satellite radio
Companies: sirius, xm

United Technologies Corporation Makes A Bid For Diebold

from the buy-now,-vote-later... dept

Just as the Onion is poking fun at Diebold for releasing the results of the 2008 Presidential election months early, it appears that United Technologies Corporation is attempting a hostile takeover of the company after it turned down a private offer. Diebold is mostly known these days for its controversial e-voting business (which the company has renamed "Premiere" to try to disassociate it with the Diebold name) but is also a major player in the ATM business. Whether or not UTC takes the company over, there's little doubt that Diebold has done a terrible job responding to the questions and accusations about the security and reliability of its e-voting machines. Having a company like UTC come in and take over could actually do a lot for the company to regain some trust.

Filed Under: hostile takeover, mergers
Companies: diebold, united technologies corporation

Microsoft Buys Another Desperate Company: Danger Goes To Redmond

from the danger,-danger,-bill-gates dept

It would appear that Microsoft's M&A team isn't solely focused on Yahoo these days. Back in December, we noted that Danger, makers of the Sidekick mobile phone device, was planning to IPO, despite not having a track record worth an IPO. As we noted at the time, it seemed like the company was going to IPO because that was its only option. The truth is probably that the company was desperately looking for a buyout, and now Microsoft has come through. It will be worth watching to see what Microsoft does with Danger, as Danger does not use Microsoft's operating system, and its model is not based on licensing software, but in taking a toll from service fees. It would take quite a bit of effort to pull out Danger's OS, which was very carefully designed for the device itself, and replace it with Windows Mobile (and it also might lead Sidekick fans to flee to other devices). All in all, it's an odd sort of acquisition for Microsoft. One would hope that the company actually has more specific plans on what to do with Danger, because the obvious fit isn't apparent. From Danger's perspective, though, an acquisition by anyone at this point has to be viewed as a better option than trying to IPO, which almost definitely would have been a disaster.

Filed Under: desperation, mergers
Companies: danger, microsoft

Yahoo Now Thinks AOL Will Be A Savior?

from the seriously? dept

Over the weekend, reports quickly came out that Yahoo's board had apparently decided to reject Microsoft's takeover bid, which wasn't too surprising, given what the company had been hinting at all week. There was plenty of talk about looking for other suitors, but one by one, the few obvious candidates all backed away. Then, late Sunday a new rumor arose: Yahoo! might try to keep Microsoft away by merging with AOL. That seems sort of like trying to keep a wild animal from eating you by covering yourself with feces. It might make awful sense for about a second, but it's just a bad, bad idea. First, it's unlikely to work -- and, second, it's just pathetic. As much as it seemed like Microsoft merging its web operations with Yahoo would be two also-rans pretending a merger would somehow make them into a web operation people cared about, merging with AOL would be even worse. Of course, the folks over at Google must be laughing hysterically at the possibility. Not only would an AOL/Yahoo merger appear to be less of a competitive worry than a Yahoo/Microsoft merger, Google might actually make out quite well in the deal, since it owns a piece of AOL. So, in the unlikely chance that Yahoo merges with AOL and fends off Microsoft, Google would cash out of AOL, watch Yahoo struggle to merge with AOL and see Microsoft left without a big internet partner. That has to be Google's dream scenario.

Filed Under: desperation, mergers
Companies: aol, google, microsoft, time warner, yahoo

Time Warner Takes Steps To Finally Spin Off AOL

from the a-bit-late dept

As part of Time Warner's earnings conference call, the company noted that it will be splitting AOL into two parts: cutting the rapidly shrinking access subscriber business from the content/advertising business. Many folks are assuming this is in preparation to finally sell AOL off. Of course, like so much that AOL/Time Warner has done over the years, this is too little too late. Remember the happy days in the 90's when AOL would come out with a press release announcing every million new subscribers? Funny that they don't do that for every million lost subscribers... However, it's been those subscribers that have hindered AOL's ability to adjust. For years, they were afraid to do too much with free content to lose that subscription base, even as that subscription base was figuring out that they could already go elsewhere and get the same content for free (and buy access for much less). So, when the company finally adopted a free model, it was too late to simply throw the doors open. People just weren't that interested. The same is true now. Time Warner had a chance to salvage AOL years back, if they had aggressively tied it to a broadband strategy rather than competing with itself and giving lip service to a more complete strategy which never actually seemed to happen. Finally separating out the dwindling access business is hardly going to catapult the rest of the business forward, as most people have simply moved on to other sources. While the sheer size of AOL's traffic can hold it up for a while (and may make it an attractive buyout for someone looking only to buy some traffic), it's lack of innovation and growth have pretty much doomed it to also-ran status.

Filed Under: broadband, mergers, portals, spinoff, strategy
Companies: aol, time warner

Both Microsoft And Google Are Probably Best Off Shutting Up About Monopolies

from the seriously,-keep-quiet dept

We found it somewhat ridiculous when Microsoft tried to play the antitrust card in complaining about Google's attempt to buy Doubleclick last year. However, it's almost as ridiculous for Google to now be playing the antitrust card against Microsoft for its effort to buy Yahoo. True, Microsoft actually is a convicted antitrust violator, but Google has clearly been beating Microsoft hands down in the internet search/advertising/portal game. In both cases, it's fairly silly, as it's obvious that there's a fair bit of competition going on in the space (and Google's own rise demonstrates how it's still possible for new entrants to rise up). It's no surprise that Google would prefer Microsoft doesn't end up buying Yahoo (even if the resulting integration mess might give Google a chance to distance its lead online), but having either side pull out claims of antitrust violations pointed at the other just seems pointless. About the only thing it's likely to do is come back to haunt them down the road, the next time either one is investigated for any kind of antitrust violations.

Filed Under: antitrust, internet advertising, mergers, search
Companies: google, microsoft, yahoo