48 Comments

Summary:

Just when you’d think Google’s financial discombobulation would give Yahoo some rest comes this heartfelt bullet from Microsoft. On the PR newswire this morning runs this incredibly respectful yet dispiritingly asexual love letter from Steve Ballmer to Jerry Yang. And, oh how Mr. Ballmer loves to […]

Just when you’d think Google’s financial discombobulation would give Yahoo some rest comes this heartfelt bullet from Microsoft. On the PR newswire this morning runs this incredibly respectful yet dispiritingly asexual love letter from Steve Ballmer to Jerry Yang. And, oh how Mr. Ballmer loves to dish, to wit:

In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that ‘now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction.’ According to that letter, the principal reason for this view was the Yahoo! Board’s confidence in the ‘potential upside’ if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.

Man, you have to hand it to sweaty old “Give It Up to Me!!!” Ballmer.

He corralled Yahoo’s proscribed empire into his greasy fist while preserving that silly artifice of the exclamation point in Yahoo!’s name. Nicely done, Steve. More than that, he finally called Yahoo on the Oz-like illusion it’s been fostering for a couple of years: “You had a year. You lost. All your base belong to us.”

I can’t shake this feeling Ray Ozzie has a hand in all this, but oh well. Yahoo shares finished Thursday at $19.18, but Ballmer & Co.’s bid of $31 a share for the web portal turned…umm, Microsoft property has driven the stock up 50 percent to $28.68 Friday morning.

Microsoft, which has $37.8 billion in cash and short-term investments, was to put out $44.6 billion in cash and stock to buy an Internet pioneer that until a year or so ago was so revered by investors and affiliates that everyone would have laughed aloud at the idea of the ticker MSFT swallowing YHOO.

Now it’s February 2008, and is anyone laughing?…Ben SteinBeuller…anyone??

Having spent my share of last-calls at bars, I can only applaud Microsoft’s ambition in its 3 a.m. bid at corporate copulation — while snickering privately at the 62 percent premium over what everyone else thought Yahoo was worth until this deal was proffered.

Let’s sit down a minute and think about what a Microsoft-owned Yahoo will mean.

Yahoo has been admirably laissez-faire with Flickr and del.icio.us. Will they be preserved or folded into to services we’ve all eschewed? How will Yahoo mail accounts be reconciled with Hotmail accounts? Will those of us who use Yahoo Finance and all its features adapt to MSN Finance? What is MSN Finance?

A 62 percent premium, hmmm –- we Yahoo users have a new choice: Learn to love life under Ballmer, or migrate to Google.

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  1. tons of synergy. just ditch all of MSN and the Ad Center and send that traffic yahoo!’s way. and yeah fold that pesky facebook under the brand while at it.

    btw, nice blog post, all om-esque. well done. this is why i come here first.

  2. Microsoft as always will push hard to gets its technology (a.k.a ASP/.NET) into yahoo data centers and throw away years of infrastructure build up in Yahoo based on robust open source alternatives (like php/mysql/hadoop). This is the same thing that has happened to hotmail.Microsoft technology has never played nicely with anyone else..and the closed nature is not good for something that is based on inter device communications – called “The Internet”/

  3. This is one of the better uses of “All your base belong to us” I’ve seen. And, yes, one of the things Yahoo did right was letting Flickr get on with it… I wonder if Microsoft can be as hands-off?

  4. @spandana

    i am glad you liked the post. the writer is kevin kelleher who is awesome. i am still on my break (stay tuned for the update.) I am going to let him know that I have started to control his brain waves ;-)

    thanks

  5. Kevin Kelleher Friday, February 1, 2008

    @spandana,

    synergy, some. tons? we’ll see. but if this proposed merger adds competition to the mix as you suggest, that may be good in the long run.

  6. Kevin Kelleher Friday, February 1, 2008

    @om.

    jeez, 8:29, okay.

    brain waves….? don’t taze me bro.

  7. take a look at it proerty-to-property, platform-to-platform, and you’d soon realize yahoo leads in every category out there. there are very few exceptions like virtual earth, vista widgets, etc. that post would take time, hopefully you guys get to it before i do :-).

    and btw om, are you going to pull an al roker on us? hope so.

  8. @ Spandana,

    looks like i might have pulled one on you already. I am getting there bro – few more weeks :-)

  9. Kevin Kelleher Friday, February 1, 2008

    @Subash,

    i agree in that i fear for all the thought yahoo has put into its offerings that could get run over by microsoft’s rulebook. and yet, i don’t have a hotmail account but since it’s been a decade on is it that bad?

    @Andrew,

    yahoo’s hands-off treatment of flickr has exemplary, as a flickr fan i can only hope microsoft will follow that example.

  10. Did you really just use the word “pwn” in a serious work of journalism?

  11. This could be a really good opportunity for Microsoft to position itself as something other than a massive, company destroying machine…simply by letting Yahoo mail and Flickr remain seperate entities and being fairly hands-off.

  12. Kevin Kelleher Friday, February 1, 2008

    @Tim

    I dwd.

  13. At Last! Microsoft to Buy Yahoo – Technozzle Friday, February 1, 2008

    [...] Coverage on TechCrunch, Read Write Web, Between The Lines, GigaOM, A VC, Search Engine Land and CenterNetworks. addthis_url = [...]

  14. As an always-cursing-but-never-leaving Yahoo! user, I am not too thrilled to hear that. Yahoo! makes some incredibly dumb user interface decisions. I’m afraid that under Microsoft things will get dumber.

  15. How does one overcome the integration risk? No mention in any articles. We know the probability of tech mergers working out is low. Google may end up being the winner due to the merger

  16. » Yes, we were right Yahoo was seriously undervalued; Microsoft offers $44.6B for the company, a 62% premium over their value from yesterday Web 2.0 Money: The Money & Business Behind the Web 2.0 Innovations Friday, February 1, 2008
  17. While combining some of the products from the company sounds interesting – like tailoring the Zune to become a Flickr, FaceBoook, Wi-Fi powerhouse – sounds interesting its possible MSFT could muck it up.

    Like having child-monitoring robots upload pictures of your kids to Flickr.
    http://static.fiercemarkets.com/public/newsletter/dailytechrag/bill_probo.jpg
    In this scenario, MSFT and Yahoo will rebrand themselves as Skynet.

  18. The potential upside is effectively realized today! Thank you! :-D

  19. I highly doubt MSFT would take as much control as completely merging Yahoo properties with MSN’s. The best route would have been to merge their advertising forces and sell stuff together on each other’s properties — on a single ad platform. That ofcoz, thanks to Yahoo’s reluctance, is not happening, hence the hostile bid, IMHO.

    I still believe, MSFT might still keep YHOO properties separately run but combine synergies in the ad platform, ad selling resulting in being able to extra juice.

    I see this deal as hugely positive for both MSFT and YHOO and yes negative for GOOG. This deal might well go through, unless, ofcoz, GOOG comes out offering Yahoo a lucrative share of the search ad revenue and offer to take control of their search share. If that would invite anti-trust troubles, given Yahoo’s hatred of MSFT, I think Yahoo offloading its search ad business to GOOG would not be ruled out either.

    One of these two things is sure to happen.

  20. Microsoft’s Online Strategy: A Yahoo Acquisition Friday, February 1, 2008

    [...] GigaOM: Dear Yahoo, I Pwn You. XO Microsoft. [...]

  21. Let the Yahoo! Feeding Frenzy Begin Friday, February 1, 2008

    [...] kevin kelleher at gigaom has a very nicely written take on this. and here’s microsoft’s kool-aid. i am sure others will follow. but first, look at what yahoo’s assets are, to name a few: [...]

  22. What Would Micro-Hoo Mean for Video? « NewTeeVee Friday, February 1, 2008

    [...] Dear Yahoo, I Pwn You. XO Microsoft. [...]

  23. Google Drives Microsoft’s Hostile Bid for Yahoo – GigaOM Friday, February 1, 2008

    [...] Stacey Higginbotham, Friday, February 1, 2008 at 8:07 AM PT Comments (6) This morning, Microsoft offered to buy Yahoo for $44.6 billion in a cash-and-stock deal. While not entirely hostile, as Yahoo’s board is considering the deal, it’s not exactly friendly, either. Steve Ballmer said on a conference call that the two companies have been talking about this for the last 18 months, but that Yahoo management always deferred. Last night Ballmer decided the time was right, called Yahoo CEO and Co-founder Jerry Yang and made the offer. [...]

  24. Alan Wilensky Friday, February 1, 2008

    Can you imagine a bigger clash of cultures?

    I have contacted a few mid level management people at Yahoo who could be described as, ‘Yahoo Purple Lifers”. They have intimated that they will stay and work to make any cultural changes to the organization, and I quote, “as painful as possible for the new Microsoft directors and division Veeps, short of insurrection”.

    I’ll try and write something up on this attitude that seems pervasive, on my blog, over the weekend. There has been plenty of bitterness over the layoff’s already.

    They are very different companies; although one could reason that this acquisition is the lawful and logical harvest of equity for Yahoo’s long term investors and employees with stock. But it takes more than a mere decision to make such a gargantuan move work.

    They are Very Different cultures.

  25. Why is everyone focusing on how this is MSFT vs. GOOG. Google wins for search hands down but thats it! What else has/ does Google do as well or better than Yahoo or Microsoft? As of yet they have not been able to execute on any of their plans outside of their core competency – search and contextually related PPC ads.

    Everyone is scared of Google but they shouldn’t be. Yahoo is still the most trafficked set of sites on the web. Yahoo still has better content, better user experience and is far more sticky that Google. Sure Google is much better at monetizing their traffic and controlling the distribution of ads than either MSFT or Yahoo but so what…Yahoo kicks Googles ass in every other aspect of the web. And when you look at world wide stats you will see that its Yahoo and MSFT who leads the charge not Google.

    MSFT is in every single computer in the world. They are the standard by which all other software is developed and compared. They have not been very effective in becoming a services or a media company and especially in how that converts to content and aggregation of their users. But that is not important for the future. What remains the important aspect of this whole deal is that even Google’s customers use MSFT.

    The second coming of the web will not be in the aggregation of content but will be the ability to control how that content is consumed.

    And that is why this is a brilliant move. Not only will MSFT be the software behind the next web revolution – as they will control the Terminals in the home with their OS and other software based synergies – but Yahoo with its vast user base and extraordinary reach into the various content categories will be the ideal partner to bridge the consumption gap and hold their position.

    Meanwhile Google will be the search engine and that is fine. Let them have the arcane task of deciphering contextual content while the world moves to real time visual communication. Let them try and move into the content, the media and the core of technology. They will try and they will fail.

  26. Isn’t there too much overlap between the two companies? I mean I could see this being reasonable for Yahoo just to rake in some cash and take off, but not in the long run. The combined entity would almost have duplicates of each of the services offered among the two companies. They certainly don’t use the same core technologies and it would take an enormous amount of labor to rebuild Yahoo on an MS platform. Within the two or more years spent merging the two companies Google would simply charge right through and scoop up the few percentage points of search left in dust cloud behind the MSFTYHOO giant. Not to mention Apple would swoop in and take chunk out of the Windows sales as the PC user feels more and more like MS forgot they sell an operating system.

    Regardless, most linux and open source geeks would pull away from Yahoo out of fear since MS never plays well with others.

    Maybe MS could simply scrap its search product and give their traffic to Yahoo Search. In that case there’s no reason to buy the other company.

  27. Finance message boards for MS, YHOO and GOOG are going crazy with rumors and numbers. Look at http://www.boardcentral.com – they scan all major financial message boards out there and build most read lists, stock popularity indexes and even Hype barometer. It seems there is an entire subculture of message boards addicts.

  28. the winner out of all of this is google, by far. unless, you know, the off chance MSFT somehow doesn’t cause a non-trivial amount of the userbase to run screaming into google’s arms.

  29. Microsoft-Yahoo Merger: Our Entire Coverage – GigaOM Friday, February 1, 2008

    [...] Dear Yahoo, I Pwn You. XO Microsoft. [GigaOM] [...]

  30. OMG ! Microsoft want to buy Yahoo! for $44.6 billion | Athow.com, Tech life at its fullest.. Friday, February 1, 2008

    [...] Digital Daily, Search Engine Land, GigaOM and [...]

  31. Scott Rosenberg’s Wordyard » Blog Archive » Microsoft plus Yahoo? The sum is less than the parts Friday, February 1, 2008

    [...] Kevin Kelleher has an amusing take over at GigaOm: [Ballmer] finally called Yahoo on the Oz-like illusion it’s been fostering for a [...]

  32. Web Worker Daily » Archive WWD Debate: Microsoft Wants Yahoo, What do Web Workers Get? « Friday, February 1, 2008

    [...] Dear Yahoo, I Pwn You. XO Microsoft. [...]

  33. Lost in the sidelines of this, MSFT would get to own the only viable
    competition for Exchange, ie Zimbra. Ouch, tough if you were a small ISP
    wanting to offer advanced services without paying the M$ tax.

  34. Microsoft and Yahoo are #87 & #87 on the Fortune 100 Best Companies to Work For http://money.cnn.com/magazines/fortune/bestcompanies/2008/full_list/index.html.

    Google is #1.

    Purely from an employee perspective, both companies have a long way to go before they can take on the might of Google.

    How can a combined company get such allegiance from employees that will take the battle to Google.

    This is the key question – ultimately it will be the employees that will execute and implement a war stategy. Are they up for a fight?

  35. Great posts and great video clips :)

    But I’ll admit, Om, I think you’re running away from the core issue here. Microsoft is acquiring yahoo for the potential search combination and almost more importantly for the traffic aggregation benefit. The real underlying benefit is to build a much greater platform for advertisers. Assuming they can build an integrated advertising platform + publisher network (a la aQuantive), which is a big assumption, the benefit to fold brands into the same umbrella just doesn’t matter. Now the MSN brand may go, only because Microsoft was creating confusion on its own long before Yahoo entered the picture (what with Windows Live, Office Live and MSN). But other than that, there’s not tangible reason by Microsoft needs to integrate the user experiences other than for the sole reason of being able to offer an integrated publishing experience to advertisers across MSFT / YHOO joint properties.

    The focus here is to give advertisers a choice: spend on paid search or display dollars or some combination of both.

    For paid search, let’s take it to google, but maybe for certain audiences, MicroHoo makes sense.

    For display ads.. Goog definitely doesn’t make sense. Let’s go with MicroHoo.

    If I have to decide between using paid search or display, well.. there’s an argument to be made for going with display on joint MSFT / YHOO properties vs going with paid Goog just because of the scale…. when there wasn’t even a question of which way I would go if MSFT & YHOO were separate…

    This isn’t about the consumers.. it’s about the sheer scale of numbers for advertisers..

  36. Microsoft announces new Flickr pricing :(

    Say goodbye to Flickr Pro. Say hello to Flickr Home Basic, Home Premium, Business, Enterprise and Ultimate. Pricing is TBD ;)

  37. Alan Wilensky Friday, February 1, 2008

    After thinking it over for the day, I can see only one thing that Microsoft brings to the table that might benefit Yahoo – discipline.

    If MS can really step back and truly give the enlightened technologists at Yahoo a fair hearing for all the great work that has gone unnoticed by their current employer (Yahoo), and bring a modicum of business and integration rigor to the combined properties, then maybe there can be good from the buyout.

    That sentence was bad. But you get it, it’s late.

  38. I think it’s a good news for bloggers because if it becomes a success then he will no more have to face monopoly of Google; I mean in the field of Google search engine and it’s advertising network, what say?

    I believe that the combination of both the companies will deliver superior values of services to the bloggers as it has compete Google. They may come up with attractive Advertising publisher network so, the blogger is no more solely dependent on Google Adsense for his income.

    Let us hope that it provides better choice and innovation for us and become a big success!

    Parul Bindra
    http://www.bhopu.com- Web 2.0 blogs

  39. Paramvir Singh Monday, February 4, 2008

    Ok. So now I have to giveup my yahoo accoint as well.
    i have been using hotmail since before msft fckd it. Then I moved to Google. And thank god for it.

  40. Paramvir Singh Monday, February 4, 2008

    Ok. So now I have to giveup my yahoo accoint as well.
    i have been using hotmail since before msft fckd it. Then I moved to Google. And thank god for it.

  41. Paramvir Singh Monday, February 4, 2008

    Ok. So now I have to giveup my yahoo accoint as well.
    i have been using hotmail since before msft fckd it. Then I moved to Google. And thank god for it.

  42. Who Will Control Advertising on the Web? – GigaOM Tuesday, February 5, 2008

    [...] web. The anticipated $80 million in online ad spending cited by Microsoft as the rationale behind its bid for Yahoo is a big number, but how that spending will be apportioned isn’t [...]

  43. 微软雅虎收购案媒体及学者观点一览 Monday, February 25, 2008

    [...] GigaOm的Kevin Kelleher对微软收购雅虎的一些有趣评论“尊敬的雅虎,我赢了,拥抱亲吻微软吧!” [...]

  44. OpenID Has Big New Friends – GigaOM Wednesday, March 5, 2008

    [...] Luke Sontag last night. He was outspoken, as usual, on the virtues of OpenID, but also on how Microsoft’s bid for Yahoo makes today’s development even richer for [...]

  45. Microsoft, Yahoo Back On, Or Not – GigaOM Sunday, May 18, 2008

    [...] As you might remember, Microsoft made a $31 a share bid for Yahoo, got spurned, and then raised the bid to $34 a share, only to see it [...]

  46. Memo to Jerry, Steve and Carl: Just Do It! – GigaOM Thursday, July 17, 2008

    [...] the ins and outs of the wheeling and dealing, the audience outside the tech world is yawning. This started back in February (2007 if you believe the original offer from Microsoft). Let’s finish this, so the world can [...]

  47. Mithras Capital–Who Are these Yahoos? – GigaOM Friday, October 10, 2008

    [...] like to revisit what they know, and what could be more familiar than the ever-present effort to get Microsoft and Yahoo together at last? Mithras Capital Partners has floated a proposal that Microsoft buy Yahoo for $22 a share, [...]

  48. Maybe Yahoo Was Destined to Flounder Sunday, January 25, 2009

    [...] milestone date lies a little further ahead: Feb. 1, the one-year anniversary of Microsoft’s proposed acquisition of Yahoo, an event that set the Internet giant into a maelstrom of turmoil no company would ever willingly [...]

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