Friday, February 8, 2008

Microsoft and Yahoo - An Ex Employee's view

MS Yahoo Logo

So my quick thoughts on the proposed Microsoft and Yahoo deal after a comment by bluejay311 in my last post.  . What the hell is Microsoft thinking? Quite frankly this is Microsoft's capitulation that it just can't compete with Google by building it's own solution, so it will go out and acquire one. The hope, I'm sure, is that by combining the second and third largest search providers into one, you can hopefully take out the behemoth Google. I just don't buy it.

Perhaps, and I think its a big perhaps, this strategy might work, but I don't think so. Search will be won by he who can deliver what the end user wants. In most cases this will be relevance, speed, and perhaps content. I'm not sure how by combining forces, Microsoft and Yahoo really address either of the first two. A second and third rate solution combined, don't beat the front runner. I liken it to basketball. In a trade involving a superstar and two really good, but second tier players, the team receiving the superstar always wins the deal hands down. It simply is a matter that there are certain things superstars can do that you can't get anywhere else. In this case, Yahoo and Microsoft just can't compete in the things that matter.

Where the deal does make sense is on the advertising side of things. It might work because Microsoft actually has pretty good technology in Ad Center, it's ad platform, and Yahoo has a much deeper advertiser base. Combining these two things gives the combined company a chance to woo advertisers to its platforms. But the problem here is that this is only a secondary consideration for advertisers. Advertisers want to be where the eyeballs are. A combined Microsoft and Yahoo might have enough eyeballs to make it worth while, but I'm not so sure. There are a couple more reasons I don't like it.

  • Yahoo seems to be fighting it - Yahoo is doing its best to find an alternative, even going to the point of exploring a possible partnership with Google.  How likely is it that the new company will integrate nicely with their new acquirers after they fought so hard to find alternatives.  How much of the top talent will just get up and leave?

  • Microsoft is overpaying - $44.6 Billion. Really? This will take most of Microsoft's cash horde as well as a stock offering. This deal values Yahoo at over 60% more than the close the previous day. This on the heels of a $6 billion aQuantive purchase, a 200% premium at the time.  Why is Microsoft continuing to pay such steep premiums.  Is this a sign of desperation?

  • Mergers are just hard - I've been through a few.  They are never easy.  I can't imagine how hard it would be for two companies of this size with their own very unique cultures.  Not to mention two companies that have been direct competitors for so long.

Microsoft may just have no choice but to make this move.  I believe they realize that Google is just too big to take down by themselves, and so are looking for any means necessary to do it.  If you don't believe what I have to say about it, just look at what the market did to Microsoft stock after the announcement, down double digits.


  1. What technology does Yahoo have that Microsoft is banking on if a merger happens? I wonder too how much Microsoft would have to tweak Yahoo's technology so that everything is compatible....

  2. I have the same question as bluejay311. Continuing with terrence's basketball analogy, what does the third best player possess that will make a team with the strongest player better.... unless that third best player is strong in something else (like great point guard instead of power forward)?