29 Comments

Summary:

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 […]

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.

Ballmer didn’t tell us what Yang said so it’s likely Yahoo’s feeling like a dateless girl before the prom, wondering if she should accept or wait for a better suitor. Given the 62 percent premium Microsoft is offering, shareholders are likely to push for acceptance.

yahoogooglecomscore.gif

There’s a six-letter reason this deal was struck and it begins with G and ends with -oogle. The specter of the search giant’s dominance was raised at least four times on the conference call, both as the reason the two firms should combine as well as an assurance as to why Google couldn’t make its own bid for Yahoo.

“All of us see this industry growing through consolidation. Today the market is completely dominated by one player and by combining the asset of Microsoft and Yahoo….the industry will be better served by having more players in search and advertising,” said Kevin Johnson, president of the platforms & services division of Microsoft.

The gist here is that Microsoft hopes to beat Google’s monopoly in search and advertising, but given Google’s 75 percent share of search advertising, it’s not clear if Yahoo’s No. 1 position in the smaller display advertising market will be of much help.

Infrastructure was one of the synergies associated with the deal: consolidating data centers, servers, etc., because
advertising is a business that benefits from economies of scale. Another goal is to combine search and non-search advertising onto a single platform, and throw the combined forces of Yahoo and Microsoft engineers at the problem of building better software and products for online advertising and consumers.

With the aQuantive deal, Microsoft strengthened its position with advertisers and publishers, but was still weak on the consumer side. That’s where Yahoo comes in. For Microsoft, its overall strategy related to the consumer Internet is securing itself a place in the value chain. It sees advertising as the best way to monetize the consumer Internet, and as such, wants to have all three pieces in place. MSN just wasn’t cutting it.

Johnson cited the forecasted growth in online ad spending, to $80 billion from $40 billion over the next three years, as the reason behind this transaction and others. “Online advertising is not only a significant growth opportunity and but also a critical element of monetization of consumer internet services,” Johnson said.

With the offer at such a premium to Yahoo’s shares, the deal is likely to go through (barring regulatory hurdles). However, given the fears of a recession in online advertising, Microsoft is paying a hefty price to stop Google.

Yahoo, Micrsoft, Google Stats courtesy of Comscore, UBS.

You’re subscribed! If you like, you can update your settings

  1. FTFA “and throw the combined forces of Yahoo and Microsoft engineers at the problem of building better software and products”

    — What combined forces? 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 based on communications alone – called “The Internet”/

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

    [...] Would Micro-Hoo Mean for Video? So Microsoft has offered to buy Yahoo for $44.6 billion. If accepted, it would certainly shake up the tech world. But what would it mean [...]

  3. Proxilog, le blog ! » Blog Archive » Microsoft fait une offre sur Yahoo!, enfin de la concurrence pour Monsieur G. ? Friday, February 1, 2008

    [...] Vu ici, enfin du nouveau chez les ‘gros’ d’Internet ? [...]

  4. What Does A Combined Microsoft Yahoo Look Like? | dailyApps Friday, February 1, 2008

    [...] of the $44.6 Billion Offer made by Microsoft to Buy Yahoo, the web is going crazy with discussions on this. This deal if takes place, could well be the defining moment of Internet in 2008. This deal [...]

  5. two bricks do not a jet make… go google!

  6. @rohit, that is the best line ever. love it.

  7. Why is Microsoft’s bid considered hostile and why are other acquisitions made by Google and Yahoo! not considered hostile?

  8. Stacey Higginbotham Friday, February 1, 2008

    Eric, I consider this is a fairly hostile deal because Yahoo hasn’t agreed to it. However, it’s not as hostile as it could be, because Yahoo is evaluating the deal rather than rejecting it outright. Most acquisitions are negotiated in advance with the boards of both companies supporting them before an announcement is made. Perhaps I should call this an unfriendly offer?

  9. Microsoft Gets All Hostile On Yahoo! « Beth Morgan’s Blog O’ Marketing Friday, February 1, 2008

    [...] names and I just refuse to acknowledge it.  Do you hear me Beverages, And More!?  However news of Microsoft’s hostile takeover bid for Yahoo! this morning caused such a collective plotz here in Silicon Valley that I ran to stand in the [...]

  10. OMG ! Microsoft Proposes to Yahoo! | Athow.com, Tech life at its fullest.. Friday, February 1, 2008

    [...] Journal, Scobleizer, CNET News.com, San Francisco Chronicle, Hardware 2.0, WebProNews, NewTeeVee, GigaOM, Epicenter, Insider Chatter, InsideMicrosoft, SEO and Tech Daily, Searchviews, franticindustries, [...]

Comments have been disabled for this post