Like many huge bids, this appears to have a large element of make or break about it. Regulators permitting, it could also solidify Microsoft's position in markets where it is strong.
The most obvious motive is to compete with Google in search and advertising. Microsoft evidently means its target of taking 30% of web searches. Its current product has had little success, so buying Yahoo buys market share. The problem is thatthey are paying a hefty premium and it is not clear that the combined search engine will do any better than the two have done separately.
Similarly, Yahoo gets a huge amount of traffic. Apart from the Yahoo branded sites (themselves giants), Yahoo also owns other major websites such as Flickr and delicous. This will make Microsoft hugely stronger in content than MSN currently is, but this si one thing regulators might be suspicious of.
Perhaps the strongest synergy would come from combining the Instant messaging networks — but they already interoperate, sharing network effects, so the benefits are limits, and actually combining their ownership might be something regulators would not like. The combined company would also have a strong position in webmail (Hotmail and Yahoo Mail).
Another benefit is that Microsoft could put and end Yahoo's backing for some technologies that compete with its own, such as SPF and Open ID. Miscrosoft's success has largely been based on finding ways to lock out competitors. It has attempted to use its websites to do this before, for example reducing (deliberately, rather than neglectfully) the functionality of Hotmail for Opera users. Once again this is likely to make competition regulators suspicious.
Finally, this is an unsolicited bid, and therefore may well remain a hostile one. $45bn is a lot even for Microsoft (although it will not be all cash), and it could end up being a lot more.
Merging technology businesses is not easy. Will Microsoft feel they need to move yahoo to Windows? That was difficult even with just Hotmail, how much more difficult will a rambling Yahoo empire be to re-engineer? How will yahoo users react to whatever changes are made? How will Yahoo's key employees like working for the merged business?
Of course this could be a key step on the road to giving Microsoft the same hold on the web that it currently has on operating systems. To my mind it is hugely expensive, brings huge execution risk. Buying growth after failing to achieve it organically is not a good sign.
Comments
Richard BeddardAbsolutely! Yahoo! shareholders should take the money, sell the MSFT shares, and run :-)