Hundreds (possibly thousands) of articles and blog posts have been written this week about Microsoft's offer of $44.6 billion to acquire Yahoo, however I thought it may be useful to highlight a couple of particularly good or interesting articles on this very significant tech story. For background, however, see the letter from Microsoft to the Yahoo board here and the internal e-mail from Microsoft CEO Steve Ballmer to Microsoft employees explaining the Yahoo acquisition offer here - both via TechCrunch. And if you are after a shorter, punchier summary of the reaction from the blogosphere, then it is probably best to head over to The Lede here. Anyway, here are some more detailed extracts and opinions on several aspects of the proposed acquisition ...
Would this be good for users?
ReadWriteWeb's Marshall Kirkpatrick argues that Microhoo could be a positive move for users:
I think this acquisition could be very good news.
It's going to validate a lot of innovation at Yahoo! Many people, including Microsoft on the conference call early this morning about the news, are focusing on what this means for advertising and for search. Since when is Yahoo! particularly good at either of those things, though? Yahoo! has created a web presence with more traffic than almost anyone else on earth. That's what they are good at and the issue is that they haven't been able to make money off of it.
Yahoo! is great at content and online innovation, though. That's what Microsoft needs right now. Google is posing a threat to Microsoft not just because it is winning in advertising, where Microsoft is a relative beginner, but because Google is shifting the software world to online.
Microsoft is serious about innovation, they just haven't been doing much of it in house for awhile. The Live.com work and the Microsoft acquisitions in the health space indicate to me the company really is trying to do more than just catch up in search and advertising.
I think that this acquisition is going to mean a whole lot more energy put behind services like Flickr and Del.icio.us and innovative content sites like Yahoo! Sports and Finance. All of that will be good for Microsoft and it will be good for those of us who find those sites and services inspiring.
Read more here. However, The Guardian's Bobbie Johnson isn't so sure, especially if you are an existing user of Microsoft's web services:
But what would it mean for ordinary users if the two were brought together?
The picture remains unclear at the moment, despite Microsoft saying it has created a detailed integration plan, but a deal would be likely to result in several popular products hitting the skids.
The email service Hotmail, for example, is one of Microsoft's flagship web products, but it remains second to Yahoo Mail, which has nearly half of the market. In the end, one system would probably end up overtaking the other, even if the names remain in place.
Elsewhere, closer integration of their competing instant messengers would make sense. With Microsoft the world's dominant software company thanks to the Windows platform, Yahoo messenger could eventually see the curtains come down.
It also appears likely the two would not be able to keep their search engines running separately. One of the main reasons to merge is the failure of their respective products – Yahoo search and Live search – to oust Google as the market leader. Recent figures suggest Yahoo search is more than twice the size of MSN at the moment.
Elsewhere, millions of people who use the pair's other services will be scratching their heads. What happens to your blog, photos or the music and video you have online?
Again, the news here could be better if you're an existing Yahoo user. Ray Ozzie, Microsoft's chief software architect, said these sorts of services are exactly what appeals in the deal. Yahoo is well placed, with a number of leading social web properties such as the photo-sharing website Flickr and the events site Upcoming. These would most likely replace some of Microsoft's less-used products.
Read more here. In a similar vein, TechCrunch's Duncan Riley also looks at what components of the two companies are likely to stay or likely to go. Read that here. However, Rafe Needlemen does a similar thing for CNET News.com in his Web 2.0 cage match: Microsoft vs. Yahoo. Read that here. PC World's Mark Sullivan also tries to offer some historical perspective to this what will stay and what will go discussion:
The truth is, nobody really knows what Microsoft would do with all the Yahoo services if an acquisition takes place.
But history gives some hints. In the past, Microsoft has been far more likely to buy technology, user bases, and traffic, but not brands. In other words, Microsoft likes to promote its own homegrown brands , like Microsoft Office or Windows Live, not brands that it has acquired.
Microsoft is likely to take that same approach to at least some of the Yahoo services, that is, subsume the people and technology behind the Yahoo services into its own MSN services. Microsoft says it can gain $1 billion in "synergies" from the deal. By that the software giant means the resources that can be saved as the two companies remove the redundancies from the combined business.
IDC's [Karsten] Weide says Microsoft should resist clinging to its own MSN-branded services, if the acquisition takes place. "Microsoft would have a hard time doing that, because they are not a media company, they are an engineering company," IDC's Weide says. "Meanwhile, Yahoo has a lot of experience in media."
Read more here.
By the numbers ...
ZDNet News has an interesting chart on Microsoft-Yahoo by the numbers, which includes the following facts:
- $59.09: the combined fiscal revenue of Microsoft and Yahoo in 2007;
- 1.2 billion: the combined unique monthly visitors to Microsoft's and Yahoo's websites;
- 83.1 million: the combined US email market share.
View the full chart here.
So why? What does Microsoft want? And is it a good business decision?
Quite a bit has been written on whether this is a good business move on Microsoft's part. TechCrunch's Erick Schonfeld looks at the business of the potential acquisition:
Yahoo represents a new growth opportunity for Microsoft in advertising revenues and online services. During the last four quarters, Microsoft’s revenues for its online services (MSN, Windows Live, aQuantive, etc.) were $2.8 billion and it lost $949 million. So just combining Yahoo with that business, you get revenues of $9.8 billion, but Microsoft would still be showing a net loss for that business of $289 million.
But 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).
Read more here. Wired's Betsy Schiffman wonders if, when it comes to search, two losers are unlikely to make a winner:
Assuming the Microsoft-Yahoo merger goes through -- which is still a big "if" at this point -- the combined company would have roughly 18 percent market share of the search-based ad market, while Google still has 75 percent of the market, according to Sandeep Aggarwal, an analyst with Oppenheimer & Co.
"Both Microsoft and Yahoo have tried to expand their search marketing business with no notable success so far … Microsoft needs to close the deal with Yahoo, integrate the combined company, and show a higher level of traction in the online advertising ecosystem as a combined company," Aggarwal wrote in a report.
The only area where the combined company could dominate is in the market for display ads, or banner ads, where Aggarwal estimates the companies could have 30 percent market share, besting Google's 2 percent share in the market. Even there, though, analysts speculate that the combined companies' dominance could be short-lived, assuming Google's acquisition of DoubleClick wins approval.
And of course when it comes to search, neither Yahoo nor Microsoft come anywhere close to competing with Google, which has 58 percent market share for search, while Yahoo has 23 percent market share and Microsoft has a measly 10 percent market share.
"The big difference between their ad offerings is that Google just does so much more volume, in terms of search," Gordon says.
Read more here. But Slate's Chris Wilson doesn't see it is as being about search, he sees it as being about something else:
Google vs. Microsoft + Yahoo!—let's call the new company Microsoft!—would be a clash of the titans, but they wouldn't be battling over search. Yahoo!'s strength as a company has never been its search engine but rather its role as a portal to a variety of Web-based applications. Acquiring Yahoo! would not help Microsoft topple Google search. But the good news for Microsoft, if its acquisition should succeed, is that search is not the Web's final frontier. The next big score will come to whoever captures the market for everything else—photo-sharing, word processing, calendar-building—that people do (and will do) on the Web. When it comes to all of those other applications, Microsoft! would be in great position to head Google off at the pass.
...
Yahoo!'s experience as a portal and Microsoft's position as the leading provider of offline software are the ingredients for a powerful Google alternative. A recent survey found that only 6 percent of respondents had tried Web-based office applications, and nearly three in four had never even heard of such a thing. By comparison, there are hundreds of millions of Microsoft Office users. Even though Google Docs has a head start on the Web, Microsoft is perhaps better positioned to win the race. The challenge that Steve Ballmer and co. are facing is how to make a dominant offline franchise just as dominant online. "The Google threat is enormous," says Jonathan Eunice, the principal IT advisor for Illuminata, a technology consulting firm. "Microsoft is very specific in what it wants. ... Yahoo! has the user community. It has built a revenue model around being a place that people go. [Microsoft is] buying a user base and a crew at Yahoo! that can keep people coming back."
Read more here. Tim O'Reilly also doesn't think it is about search - he sees it as being about strategic assets in email:
The thing that jumps out at me is just how dominant the combination would be in web-based email. (Caveat: Hitwise doesn't count "in service email" on AOL and MySpace in these figures.) Add in Microsoft's incredible dominance in corporate email with Exchange and Outlook. Now think about all the possibilities that are starting to be explored in the area of email data as a source of information about users, and a locus for building new services for those users. (Of course, you might also think about the anti-trust implications of this combination....)
Email hasn't changed significantly in years. As I've written previously, there's a huge opportunity in building a next generation address book. (Doc Searls calls this Vendor Relationship Management. I prefer the term Personal Relationship Management.) I want tools that augment my ability to remember, manage, and communicate with all the people I deal with every day, in both personal and business contexts.
If Microsoft does consummate this merger (and I understand from the scuttlebutt that Yahoo! does consider it a hostile takeover), the surest way NOT to profit from it is by focusing on the areas where Google is already the strongest. Microsoft needs to invest in the future of applications where Microsoft and Yahoo! are strongest, and where there is significant opportunity for innovation. Email and other messaging platforms meet these criteria.
Read more here.
Who is unhappy with this proposed acquisition?
Some Yahoo employees are concerned about the cultural impact of the acquisition (see here), privacy groups oppose the deal (see here), News Corp also isn't a fan given they are also now seem to want to acquire Yahoo as well (see here), and it is appearing likely that the deal may struggle to get antitrust approval (see here). But the unhappiest group appears to be a small community of Flickr users - there are now 92 photos in a pool called MICROSOFT: KEEP YOUR EVlL GRUBBY HANDS OFF OF OUR FLICKR, including these two ...
First, this one from ososment:
Second, this one from jcrr, which I found particularly amusing:
Read more about the unhappy Flickr community here (from Wired). And Mashable has a great collection of other photos here.
Finally, to try and end on some balance, PC World's Tom Spring acknowledges that when you put together two giants like these, there are bound to be some good results and some nasty ones. So he lists his 11 dreams and nightmares resulting from such an acquisition. Read it here.
I don't know much about the Internet but I will tell you this: $33 is a sky-high price for Yahoo! from a value investor perspective. These folks have never earned more than a $1.28 per share in a year and have been around for more than a decade. If Yahoo! has a profit generating machine now would be the time to turn it on.
Posted by: AK | Saturday, 19 July 2008 at 01:02 PM