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.

  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”/

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  2. [...] 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 [...]

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  3. [...] 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 [...]

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

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

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

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  7. 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?

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  8. [...] 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 [...]

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

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  10. I think the Microsoft war chest could be best put to use by Yahoo! by trying to gain a foothold in the mobile search arena. It’s the one arena where Google doesn’t have a dynasty.

    http://billkosloskymd.typepad.com/wirelessdoc/2008/02/could-microsoft.html

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  11. It may be a coincidence but this morning Yahoo emailed an offer to Business Hosting customers to upgrade to unlimited email storage, unlimted bandwidth, unlimted online storage, 1000 email accounts for no charge.

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  12. [...] Google Drives Microsoft’s Hostile Bid for Yahoo [GigaOM] [...]

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  13. I just received this ‘letter’ in my inbox:

    IMMEDIATE ATTENTION NEEDED:
    
    HIGHLY CONFIDENTIAL
    
    FROM: WILLIAM HENRY GATES III
    DEAR SIR / MADAM,
    
    I AM WILLIAM HENRY GATES III, AMERICAN ENTREPRENEUR, SOFTWARE EXECUTIVE, PHILANTHROPIST AND CURRENTLY SERVING AS CHAIRMAN OF SOFTWARE COMPANY MICROSOFT. THIS LETTER MIGHT SURPRISE YOU BECAUSE WE HAVE NOT MET IN PERSON NOR BY CORRESPONDENCE. I CAME TO KNOW OF YOU IN MY SEARCH FOR A RELIABLE AND REPUTABLE PERSON TO HANDLE A VERY CONFIDENTIAL BUSINESS TRANSACTION, WHICH INVOLVES THE TRANSFER OF A HUGE SUM OF MONEY TO AN ACCOUNT REQUIRING UTMOST CONFIDENCE.
    
    I AM WRITING YOU IN ABSOLUTE CONFIDENCE PRIMARILY TO SEEK YOUR ASSISTANCE IN ACQUIRING THE AMERICAN PUBLIC CORPORATION YAHOO, A GLOBAL INTERNET SERVICES COMPANY. IT PROVIDES A RANGE OF PRODUCTS AND SERVICES INCLUDING A WEB PORTAL, A SEARCH ENGINE, YAHOO MAIL, NEWS, AND POSTING. MY PARTNERS AND I SOLICIT YOUR ASSISTANCE IN COMPLETING A TRANSACTION BEGUN BY MY COMPANY, AN AMERICAN MULTINATIONAL COMPUTER TECHNOLOGY CORPORATION WITH 79,000 EMPLOYEES IN 102 COUNTRIES AND GLOBAL ANNUAL REVENUE OF US $51.12 BILLION AS OF 2007.
    
    IN 1996, MY COMPANY, THEN THE PERSONAL COMPUTER MARKET LEADER IN THE UNITED STATES OF AMERICA, SOUGHT TO WORK WITH THE GOOD OFFICES OF THE SUPREME COURT TO MAINTAIN AND INCREASE REVENUE SOURCES BY FIXING VARIOUS ANTI-TRUST CASES. THE ISSUE IN QUESTION WAS HOW EASY OR HARD IT WAS FOR AMERICA ONLINE USERS TO DOWNLOAD AND INSTALL NETSCAPE NAVIGATOR ONTO A WINDOWS PC. ALTHOUGH WE DID NOT SEE IT AT THE TIME, THIS INSTIGATED THE BEGINNING OF OUR DOWNFALL.
    
    DESPITE THE COURT FINDING THAT THE REVISED PROPOSED FINAL JUDGMENT WAS IN THE PUBLIC INTEREST, WITHIN TWELVE SHORT YEARS MY COMPANY WAS LEFT FLOUNDERING BY A SERIES OF UNSUCCESSFUL VENTURES: THE FAILURE TO LAUNCH LONGHORN, THE ZUNE, WINDOWS VISTA AND MANY, MANY MORE.
    
    DUE TO SUCCESSFUL BUSINESS DEALINGS THROUGHOUT THE 1990S MY COMPANY IS WORTH FOUR-HUNDRED-AND-ONE BILLION U.S. DOLLARS ($401,000,000,000).
    
    MY BITTEREST ENEMY, GOOGLE, NOW REMAINS IN CONTROL OF THE INTERNET’S LUCRATIVE ADVERTISING BANNER BUSINESS.
    
    MY COMPANY IS CALLING FOR YOUR URGENT ASSISTANCE IN FUNDING THE TAKEOVER OF YAHOO! TO ACQUIRE THE ASSETS OF THE ENTIRE INTERNET COMPANY IN ORDER SO THAT WE MAY REGAIN OUR MARKET LEADING POSITION IN BOTH ADVERTISING AND ONLINE SEARCH.
    
    I WOULD BESEECH YOU TO ALLOW US TO TRANSFER A SUM EQUALLING $44 BILLION TO YOUR ACCOUNT TO AID IN THIS IMPORTANT VENTURE. THE NASDAQ STOCK MARKET OF THE UNITED STATES OF AMERICA WILL FUNCTION AS OUR TRUSTED INTERMEDIARY. I PROPOSE THAT WE MAKE THIS TRANSFER BEFORE MID-2008.
    
    I KNOW THAT A TRANSACTION OF THIS MAGNITUDE WOULD MAKE ANYONE APPREHENSIVE AND WORRIED. BUT I AM ASSURING YOU THAT ALL WILL BE WELL AT THE END OF THE DAY. A BOLD STEP TAKEN SHALL NOT BE REGRETTED, I ASSURE YOU. PLEASE DO BE INFORMED THAT THIS BUSINESS TRANSACTION IS 100% LEGAL. IF YOU DO NOT WISH TO CO-OPERATE IN THIS TRANSACTION, PLEASE CONTACT OUR INTERMEDIARY REPRESENTATIVES TO FURTHER DISCUSS THE MATTER.
    
    I PRAY THAT YOU UNDERSTAND OUR PLIGHT. MY COMPANY AND OUR COLLEAGUES WILL BE FOREVER GRATEFUL. PLEASE REPLY IN STRICT CONFIDENCE TO THE CONTACT NUMBERS BELOW.
    
    SINCERELY WITH WARM REGARDS,
    
    WILLIAM HENRY GATES III
    
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  14. Really? I received an email that Yahoo employees were organizing a massive orgy. Seems the company will be finally sold…

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  15. [...] GigaOM – Stacey Higginbotham feels it’s more about the online advertising side of things than anything else. Even if that is the case, she questions the sensibility of the deal. 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. [...]

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  16. I appreciate the openness with which some of you describe the consequences of Bill Gates becoming even more powerful–all at the expense of regular folks around the globe. I wish more journalists were as honest as you are.

    In many ways, we often get sucked into something that’s not good for us, the country, for computer users around the world, simply because some irresponsible journalists dare not speak up, just as many writers dare not say anything critical about the Scientology cult which has put great pressure on journalists to toe the line.

    Again, thanks to all of you for writing in, honestly and openly. You made my day.

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  17. Sachin Balagopalan Saturday, February 2, 2008

    Microsoft needs Yahoo to survive!

    http://tinyurl.com/2hattk

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  18. [...] Malik, Sunday, February 3, 2008 at 11:57 AM PT Comments (1) Google has kept mum on the much talked about Microsoft-Yahoo deal, but today the company broke its silence and posted its official statement on its blog. The [...]

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  19. …robust open source alternatives (like php/mysql/hadoop)…
    What a joke! How could anybody refer to php being a “robust” technology?

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  20. Let me guess– you like .NET. You probably also like Windows. You probably also like ‘N Sync.

    These sites, to you, Java or .NET fool, are not robust:

    Facebook
    Wikipedia
    Yahoo
    Youtube
    New York Times
    Craigslist

    Noscripting, huh? That’d include Ruby and Python, as well.

    Go crawl back to the rock you apparently live under. I pray for your clients, assuming you have any.

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  21. Google also donated a bunch of code to Zend for their framework. But you, you know better than them . You and Sun and Microsoft, all of whom don’t use scripting languages… and all of whom are tanking and failing wretchedly.

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  22. [...] לדיעות הרווחות, איני סבור שמיקרוסופט מעוניית לקנות את יאהו ב- 44.6 [...]

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  23. Coming Soon: Yahoo search pop-up windows with brilliant questions such as:

    “You’ve entered a search item. Allow Search Now?” Allow – Deny

    “The search engine needs your authorization to retrieve search results. Allow Retrieval?” Allow – Deny

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  24. [...] az e-mail, és a hozzá kapcsolódó IM piacon könnyen, és alaposan ráverhetne a Google-re. A látogatottsági statisztikák meg egyértelműen az MS javára dőlne el. És ahol a látogatók, ott a [...]

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  25. [...] 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 rejected it again. [...]

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  26. [...] Ballmer also made fun of Yahoo for likely thinking it was still worth today what it was back in February, when Microsoft was negotiating to buy it. This morning, before Ballmer made his comments, Yahoo’s shares opened at $11.82, [...]

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  27. [...] Ballmer also made fun of Yahoo for likely thinking it was still worth today what it was back in February, when Microsoft was negotiating to buy it. This morning, before Ballmer made his comments, Yahoo’s shares opened at .82, way [...]

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