Of course I’m referring to Microsoft’s unsolicited bid for Yahoo. A takeover bid of this size will generate a lot of attention, but that’s obviously not the long term goal. Here’s how I believe this deal will play out and the reasons for it.
First of all, nothing is going to happen for a long time. The board of Yahoo has to decide if they are interested in a deal with Microsoft, and if they want to haggle about the price. If the two companies manage to hammer out a deal, then there will most likely be some regulatory scrutiny both from the FTC in the U.S. and from the EU.
During this process competitors will do their best to derail and delay things. This is not necessarily because they don’t want the deal to go through. Anything that will prolong the distractions and the internal turmoil of Microsoft and Yahoo, is good for the competition.
Culture Crash
Having worked in this industry and in the Silicon Valley area for a long time, I know that the differences in corporate culture between Microsoft and Yahoo is like that of two different countries. (Robert Cringely thinks this is the whole reason for the takeover.)
This will lead to a mass exodus from Yahoo. Even though Yahoo has seen better days it’s still one of the original Internet startups. On the other hand, working for Microsoft has zero street cred in Silicon Valley.
Among the first to jump ship will be Jerry Yang and David Filo. Since this is an all cash deal they will have no stake in the combined company, and no reason to stay onboard.
Eyeballs
Yahoo is arguably the largest Internet property, with more traffic and eyeballs than anyone else. And they have an international presence that Microsoft lacks. But the overlap between the various Yahoo and Microsoft sites is significant: Hotmail and Yahoo Mail, etc, etc.
For a lot less than $44B Microsoft could have purchased more traffic by buying a dozen other companies. Besides, buying eyeballs seems so 1999.
Search
The search game is over. Google has won and they have moved on. Combining a distant #2 and #3 in any industry is not going to take over the leader, especially not in the search business.
If Microsoft wanted to beef up their search technology and related advertising services, they could have purchased all other companies in the search business, and still had change left over.
It’s Big
So why does Microsoft want to buy Yahoo so badly? Microsoft’s stock price has been essentially flat since Steve Ballmer took over as CEO and not much new exciting news has come out of Redmond in his time. He needs something big before he retires. And Bill Gates gets (to buy) a part of Silicon Valley history. Big companies and big egos need big deals.
What do you think?
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