Thursday, April 10, 2008

Yahoo and AOL - Really?

AOL Yahoo

What is Yahoo thinking?  In an attempt to thwart or perhaps raise the Microsoft offer, Yahoo announced a possible merger with AOL.  How does this make any sense for Yahoo?

I look at this news with a raised eyebrow because, quite honestly, it seems a little desperate on Yahoo's part.  I see Yahoo has the girl who can't get the attention of the boy she likes, and is looking to be with the next guy who walks down the street in order to make the boy jealous.  I mean AOL?  Is AOL even in business any longer? How does AOL help Yahoo?  What assets does AOL bring to the table that Yahoo needs?

Microsoft has threatened to go hostile with its bid if Yahoo does not accept in the next three weeks.  My honest feeling is that while Microsoft really needs Yahoo, it doesn't need it at the price that Yahoo is asking.  When the deal was announced, Yahoo's stock rallied while Microsoft's stock went down.  Clearly showed there were already concerns about the deal Microsoft was making.  Don't see how offering more really makes any sense for Microsoft.

Let's be real about what is going on here.  Google is #1 when it comes to the internet and it is distancing itself further.   The eats at Microsoft who just can't stand to be #2 in anything, much less #3.  But by acquiring Yahoo, does anyone really think that Microsoft will close the gap and eventually take over Google?  Does a distant #2 and #3 amount to a #1?  In short, no.

I liken it to trading for a superstar in sports.  Often times, a superstar is traded for two lesser players.  Sometimes it works out for the team getting the lesser player, but it is normally to the advantage of the team getting the superstar?  Why?  Because there are just things that great players do that can't be replicated no matter how many other players you get back.  There is only one Kobe Bryant.  And there is only one basketball on the court.  And there is only one person who take the last shot in the game.  Two mediocre players might each have a 35% shot at hitting that game winner. Kobe might have a 70% shot.  However, you can't combine their chances and say they have an equal chance of hitting that shot.

Yahoo, be smart and take the deal.  I prefer you don't, as a Microsoft shareholder, but if you have any sense in you, you do it.


  1. Bad move if Yahoo buys AOL. I can't think of anything AOL is known for now. When messenger first came out on AOL, that was big. What has AOL done since then? In the meantime, AOL competitors have created a number of equally user-friendly messenger tool. Not to mention, texting is more of the norm and preferred communication mode. If Yahoo buys AOL, that should be a good enough sign for Microsoft to walk away from the table.

    To echo a recurring Jim Cramer sound effect, "Don't buy! Don't buy!"

  2. Let's set aside Aol for a bit. What can Microsoft really gain from purchasing Yahoo? Better compete with Google? Really? Or just buying out available property that Google may buy to make itself bigger? I think this move is just that: the Starbucks tactic. Try to stay ahead of other coffee shops by buying out as many spaces as possible. Force your own monopoly.