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.
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.
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
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.
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.
…robust open source alternatives (like php/mysql/hadoop)…
What a joke! How could anybody refer to php being a “robust” technology?
Microsoft needs Yahoo to survive!
http://tinyurl.com/2hattk
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.
Really? I received an email that Yahoo employees were organizing a massive orgy. Seems the company will be finally sold…
I just received this ‘letter’ in my inbox:
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.
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
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?
Why is Microsoft’s bid considered hostile and why are other acquisitions made by Google and Yahoo! not considered hostile?
@rohit, that is the best line ever. love it.
two bricks do not a jet make… go google!
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”/