Month: February 2008

Henry Blodget of Silicon Alley Insider says that he has heard rumours of at least one and possibly two other bidders who had offers all ready to go for Yahoo before Microsoft jumped in and spoiled the party, and Paul Kedrosky says he has also heard such talk — supposedly private equity groups, likely out of New York, looking to take advantage of Yahoo’s depressed stock price to launch a takeover and then pay for it by selling off bits and pieces.

Update: News Corp. may also be considering a bid of some kind, Mike Arrington reports.

Regardless of whether there are other bidders or not, I don’t see how they can afford to top Microsoft’s offer. Sure, they could probably raise the money to boost their bid, but would it be worth it? The fact is that Yahoo is worth more to Microsoft than it is to anyone else — Microsoft can justify paying a much higher price because it will (theoretically at least) get enough in the way of synergies out of the deal to make it worthwhile.

How is a private equity bidder going to justify a 62-per-cent premium? There just isn’t that much value in Yahoo for anyone else, IMHO.

At Rob’s urging, I’ve put together some of the Twitter posts (no, I will not call them “tweets”) that came through my Twitter client this morning related to the Microsoft-Yahoo deal. Got any others? Email me.

@stuartma: Studebaker buys Edsel.

@rhh: if anything, we’re going to get an object lesson now in the true cost of strategic intransigence.

@pkedrosky: @kteare “if msft were to succeed”? if this deal doesn’t happen both company’s shareholders will beat them with sticks until it does.

@ev: My answer to reporter: Has putting two behemoths together ever, in the history of corporations, resulted in greatness?

@pkedrosky: @ev well, don’t forget The Traveling Wilburys. They merged and did some good stuff. Oooh, you mean public companies. Nevermind 😉

@davemc500hats: @ev: how about ebay+paypal. or Yahoo+Overture/Inktomi?

@ev: @davemc500hats good point. but both companies were way more focused than YHOO or MSN. also, not quite “behemoths” — although, perhaps YHOO doesn’t qualify either.

@rhh: By the time MSFT swallows YHOO, GOOG will not be the company it was trying to compete with. It’s going to spend too much time chewing.

@waxpancake: It’s like tying the Titanic to the iceberg. It’d keep you from sinking just long enough to freeze to death.

— and from the rest of the Twitterverse (via Terraminds):

@pandapoo: OMG! Microsoft Just Bought Yahoo! which bought Flickr which now makes me a Microsoft user!? YUCK! I feel dirty.

@spdemac: If MS and Yahoo merge, their search will be know as “Microwho?”. Small, forgettable and unused.

@andymelton: Well, maybe Yahoo can teach Microsoft a thing or two. I just hope Flickr doesn’t get destroyed. I love Flickr.

@cageyjames: As long as Microsoft doesn’t touch Flickr, Yahoo! Sports and Yahoo! Finance, I have no problems with them ripping Yahoo! apart.

@nep: I felt good about Flickr having my photos, OK about Yahoo having my photos, but bad about Microsoft having my photos.

@retrophisch: Microsoft acquiring Yahoo…this is a joke, right? RIGHT?!!?!?

@lgpiper: I bet Bill Gates uses Google. Can’t find crap with MS search. Yahoo isn’t much better. Suck + suck = Suck^2

@jimlindley: Microsoft and Yahoo, sitting in a tree – F A I L I N G. Microsoft is going to choke on Yahoo and die. I hope.

@quackking: highly skeptical of M$ being able to ‘get it’ via a Yahoo buy. @ev has it right.

@midasjohn: WARNING EVERYONE: Microsoft taking over Yahoo marks DOOMSDAY in many respects. You remember Dick Jones @ OCP ? [ed: RoboCop reference]

@zacechola: Yahoo accepts Microsoft offer, joins forces with Time Warner and entire recording industry: Forms League of Evil. Google readies laser guns.

@twoluvcats: true: “If Yahoo agrees to the deal with Microsoft, it will be a shotgun marriage, but it will be Google holding the shotgun.”

With the Microsoft-Yahoo related links on Techmeme now stretching to more than seven full screens as I type this — possibly the largest single thread ever in Techmeme history — I thought I would pare it down a little and focus on what in my opinion are some of the key posts when it comes to understanding and appreciating this deal (Note: I also did an audio slideshow for the Globe, in case anyone wants to take a listen). This selection is purely personal:

— Paul Kedrosky: the former analyst turned venture capitalist has posted multiple reactions to the deal, including an overview and some quick thoughts, as well as a primer for Jerry Yang on what to do if he doesn’t want to get bought. Also just posted a breakdown of traffic and market share for Yahoo and Microsoft vs. Google.

— All Things D: Kara Swisher of the Wall Street Journal says in her Boomtown blog that a Microsoft offer was inevitable, and that Yahoo made it inevitable by its continuing inability to focus and turn the ship around. Key quote:

“With it’s I-shall-have-it bid for the troubled Internet giant, Microsoft has made a bold, slightly insane lunge to ensure that it is not sidelined in war with Google to control the Internet.”

— Search Engine Land: Editor Danny Sullivan, a search industry veteran, has some analysis of the deal and also has live-blogging notes from the conference call, and comparison of search engine market share. Key quote:

“The short story is this. Search is important, and Microsoft has failed to build much less maintain search share while Yahoo has held steady against Google.”

— Centernetworks: Allen Stern also live-blogged the news conference.

— TechCrunch: The tech blog has <a href="http://www.techcrunch.com/2008/02/01/what-would-a-combined-microsoft-yahoo-look-like/ a look at what a combined Yahoo and Microsoft would look like, as well as the internal email from Steve Ballmer to employees at Microsoft justifying the acquisition. Key quote:

“This is an advertising play for Microsoft. It wants to combine the scale of its recently acquired advertising networks with that of Yahoo’s, along with Yahoo’s vast consumer reach (which is appealing to advertisers, who see all those eyeballs as valuable inventory).”

— New York Times’s blog: Technology editor and blogger Saul Hansell says that it’s a deal Yahoo can’t refuse.

— IPDemocracy: Editor Cynthia Brumfield says the deal is big, but boring. Key quote:

“Yes, Yahoo! shareholders will get a hefty premium for their tanking shares. Yes, a bunch of people will get laid off if Microsoft achieves its “synergies” and “economies of scale.” Yes, a lot of investment bankers will walk away with enough funds to buy their second or third vacation homes.

Aside from that, a merger between Microsoft and Yahoo! is just boring. Neither company has done much that is terribly innovative or interesting for years. What, precisely, will merging these two lumbering, bureaucratic giants achieve that is even remotely interesting?”

— Silicon Alley Insider: Henry Blodgethas posted multiple looks at the deal, including one based on talks with a senior executive at Microsoft, who said Jerry Yang’s reaction was “polite.” There’s also a look at whether there will be other bids (doubtful, says Henry) and a rundown of the conference call as well as a look at the combined company’s financials and the views of some Wall Street analysts.

— Fred Wilson: Fred says a deal was almost inevitable. Key quote:

“We all knew this was coming. Yahoo! was cheap. Too cheap. And a mess. Rats were leaving the sinking ship en masse. It was not sustainable. Something had to happen. And so the most logical thing has now happened.”

— Forrester Research: Analyst Charlene Li has posted her thoughts on the deal. She says it’s going to be messy, and that it’s about more than just search.

— Search Engine Journal: Loren Baker says that Microsoft needs Yahoo’s strengths.

— Virtual Economics: Seamus McCauley, an analyst with Northcliffe Digital in London, says on his blog that even Microsoft and Yahoo combined might not be enough to take on Google.

— Scott Rosenberg: The co-founder of Salon.com also sees the sum as being worth less than the parts, and says if the deal closes a lot of smart people will likely leave Yahoo.

— ZDNet: Larry Dignan says that Google could play spoiler and bid for Yahoo too.

The bottom line: This is a move of desperation for both companies — a kind of shotgun wedding, with both sides holding a gun. Microsoft needs to buy Yahoo (or thinks it does) just as much as Yahoo needs to be bought by Microsoft. The happiest player in this particular game has to be Google: This deal means that it is dominating the market to the point where the world’s biggest personal software company and one of the founding fathers of the Web have been virtually compelled to join forces.

But can two sick dogs roped together beat one healthy dog?
Note: I did an audio slideshow for the Globe looking at Microsoft and its attempts to catch up with Google in the ad market. Here’s the link if you’re interested in listening to it.

Original post:

And then there were two. If Microsoft’s $44.6-billion (U.S.) bid for struggling Web giant Yahoo Inc. is successful — which it almost certainly will be — then there will be only two Web titans where once there was a triumvirate. Google and Microsoft will finally be going head-to-head for supremacy in the online advertising market, a game that Google has more or less controlled ever since it arrived on the scene several years ago, despite Microsoft and Yahoo’s best efforts.

Microsoft is rumoured to have made several advances to Yahoo over the past year and a half, and has been turned down each time. But now, the software behemoth is going directly to shareholders with an offer that has to look awfully good after the year Yahoo just had. Shares of the Web company have plummeted by more than 45 per cent in just the last three months, as investors have soured on the company’s chances of a rebound. Terry Semel was ousted as CEO because of a failure to deliver, and replaced by Yahoo co-founder Jerry Yang — a sentimental favourite with Yahoo fans, but a relatively unknown quantity from a management point of view.

The big question, of course, is whether this deal makes any sense or not. It clearly makes sense for Yahoo, since the company effectively gets a bye on having to come up with any kind of brilliant turnaround strategy — and shareholders, including co-founders Jerry Yang and David Filo, get a nice multibillion-dollar payday. Yahoo’s online advertising efforts haven’t had much success in growing the company’s market share, despite the fact that the company bought Overture, the firm that invented the keyword-ad market that Google later perfected. So why not sell?

For Microsoft, the question is a little murkier. Buying Yahoo has to look like a pretty sweet deal on the surface at least. Not only is the stock 60 per cent off what it was the last time Microsoft looked at buying it, but acquiring Yahoo gives the software company instant heft in its own online advertising business — a business that has continued to be a distant third in the market, despite Microsoft spending billions of dollars in an attempt to improve its position. Yahoo also has a number of attractive media properties and relationships such as Yahoo Music that Microsoft could fold into its own MSN assets.

At the same time, however, buying a company like Yahoo and trying to merge it with a gargantuan company like Microsoft is a time-consuming and expensive task — not to mention the difficulty of blending those two corporate cultures. Microsoft is a packaged software distributor at heart, while Yahoo is a Web company, and mixing those two approaches isn’t going to be easy. When Hewlett-Packard bought Compaq, it took several years for HP to actually digest the company. HP was lucky that by the time it was done, its main competitor had weakened to the point where it could get back in the game relatively easily. Google isn’t likely to give Microsoft that option.