I wonder about big business and let's face it, there's no bigger business than microsoft. So naturally the entire world has been transfixed by msoft's attempt to buy the web. The redwood company have announced that they're not going to pursue yahoo (yeah? well we'll see!) so what now? I've stated in the past it wasn't a good idea for either company, but for yahoo's stockholders will not be happy as their stock is bound to drop and as for msoft they still have their cash piles.
Jerry yang has gambled his companies future by teaming up with google and admitting that their search model is superior. That being the case, what makes yahoo a viable acquisition? Without the search model yahoo will offer nothing to microsoft. Yahoo are committing themselves to a more open web, they are aligning themselves with their competitors, which all in all means that in my opinion microsoft should walk away entirely. Why spend your cash on a company that might not last the distance, or even another year or two?
So after weeks of nothing, Microsoft sent yahoo a letter at the weekend detailing their continued desire to buy yahoo. Naturally, yahoo have now replied declining the Redmonds offer yet again.
So what’s going on?
Basically, yahoo are holding out for more money, but that’s not the whole story. Yahoo’s board have an obligation to deliver long term growth prospects to its shareholders. If Microsoft buy yahoo what does that mean for yahoo? Their stockholders will get a payday, but the future of yahoo will be put in jeopardy. Yahoo as a brand may even die. Yet this will be of no interest to current yahoo stockholders as they will have sold out. So what is the problem you may well ask? Essentially yahoo believe there is more to the MS deal than meets the eye. No one wants to sell their company to anyone for a below market valuation, and no one wants to sell their company if they think the company buying it will run it into the ground. Now I’m not speculating that MS will integrate yahoo into MSN but it would be the logical next step. Look at how hard google has been working to integrate their acquisitions into its growing portfolio.
This is the main reason for the MS approach. Microsoft are falling behind in the online stakes, they are loosing ground to google and yahoo in the online ad business and there are many companies trying to steal a march on MS by releasing traditional desktop software as an online resource, thereby directly competing with MS Office. There is a growing dislike of the way MS dominates operating systems and office applications (much in the same the music business dislikes the strength of itunes) and consumers are moving away from the desktop application. In fact, I predict that in a few years desktops will be a thing of the past, or at least only used in the office place. Ultra portable laptops such as the Asus EEE will change how people connect to the internet at home, mobile phones will become even smarter and people will use them to stay connected with friends via email and social networking sites. So, with this in mind, how does microsoft maintain its current revenue streams in the next decade? If MS office takes a back seat and alternative operating systems eat into windows market share, MS revenue drops, their share price falls, and well, dare I say that they could become a relic of the 20th century?
This is the real danger for yahoo’s board. Do they recommend a sale to MS, only for MS to become debt laden and uncompetitive in a market that they already have proven not to understand?
A Microsoft executive, Kevin Johnson sent an email on Friday to placate Yahoo! staff on their proposal. He defended Microsoft’s recruitment policies and highlighted the Redmond companies offices in Silicon Valley and stressed the need to retain knowledge.
At this stage it’s looking like the takeover will be hostile and not amicable as was first thought. This means that things could get nasty with each companies board issuing sniping statements which both parties will ultimately regret.
Further analysis on the deal highlights Microsoft’s lack of skill in the online area and inability to launch new products all on its own. Yahoo! on the other hand has proved that it cannot cope with the strength of googles online presence both as a search engine and as an ad agency. How then will the two combine to effectively challenge google?
Maybe it’s time Microsoft concentrated on its operating system business and stopped trying to be something its not.
So, Yahoo! have decided that Microsofts offer of $31 a share undervalues the company. What’s intersting is that the Yahoo! board have indicated that they are willing to let the company go, but only at the right price. So what can we conclude about this?
Well, either Yahoo! are confident that they can withstand an agressive takeover approach from MS or they are holding out for a bigger pay day. Runour has it that Jerry Yang (Yahoo!’s chief) is getting board with the search engine and is looking for other ways to spend his day. This being the case, then a Yahoo! sale would suit him.
The flip side of the coin is how badly do Microsoft want Yahoo!? They clearly need a meaningful web presence beyond hotmail and are willingly to pay for it, but at what cost? $40 odd billion for a search engine is mighty gamble, even if MS can afford it. Why not just increase the marketing budget and release more free apps to compete with google. The reason google are so powerful is that they are viewed as being a ‘good’ company. One of their strengths is that their products are free to the end user, paid for by advertising. They are also very easy to use, something MS or Yahoo! have failed to match.
Expect an increased bid from MS in the next few days.
First up is Amazons deal to buy Audible for nearly $300 million. If you’re not an audible user, then you probably will not care about this deal, but for those of us who are, then this deal is huge. It will allow Amazon to sell paper books, ebooks and downloadable audio books through its shop window. OK, this might not sound like a big deal, but with Amazon releasing the kindle, the user now has greater choice on how to consume literature. Kindle already supports the subscription model, therefore audible will sit nicely on the kindle as an add on.
Next up is Microsoft’s proposed take over of Yahoo!. This has got a few bloggers running scared, not least google. I have to say that I’m not that bothered. Yes it’s a huge deal, but it real terms, we wont know how it will impact on net users for at least 12-18 months. This deal is disguised as a defence to googles advertising and search monopoly and will easily pass anti competitive measures. But, it’s not just about advertising and search. Yahoo and Microsoft together have over 500 million email users. They also have a huge instant messaging presence, which means that together they will dwarf all other email and IM services. By contrast gmail only has around 50 million users. The implications for this part of their business is unknown; will yahoo mail become live mail for instance?
I’ll be posting a follow up article in a couple of days.