On Feb 1 Microsoft offered to buy Yahoo! for $31 per share, a deal that was valued at $44.6 billion, in an attempt to acquire assets that would allow MSN to become a real competitor to Google’s supremacy on the Internet.
Microsoft justified its interest in acquiring Yahoo! explaining that:
“The industry will be well served by having more than one strong player, offering more value and real choice to advertisers, publishers and consumers.”
Yahoo! would certainly add some very valuable assets to Microsoft’s Internet Division, such as an audience of more than 500 million people per month in sites devoted to news, finance and sports, or Yahoo Mail (the most widely used consumer e-mail service on the Internet) or web banner ads used by corporate brand advertisers.
Although the price was a 62% premium above the closing price of Yahoo! common stock of $19.18 on January 31, 2008, it was only about a quarter of what Yahoo was worth in 2000, and the company’s board finally rejected the offer two weeks ago because they felt they were being undervalued at $31 a share. Or at least that’s what they said.
At a conference at the Interactive Advertising Bureau on Monday, Yahoo chief executive Jerry Yang had the chance to provide their own version of the story.
Yang broke the ice with a “Before you start, let me guess what your first question is. Does it start with an M and end with a T?”
However he did not elaborate much further:
“Everyone has read what we are doing, so there is not much to report. We’re taking the proposal that Microsoft has given to us seriously. It’s been a galvanizing event for everyone at Yahoo. Our board is spending a lot of time thinking about all the alternatives. It’s something that we need to think through carefully.”
But Microsoft is not be put off so easily and has recently hired a proxy firm to try to oust Yahoo’s board.
Last Friday, Microsoft released an internal memo from Kevin Johnson, President of Microsoft’s Platforms & Services Division, where he actually sees the deal going through:
“While Yahoo! has issued a press release rejecting our proposal, we continue to believe we have a full and fair proposal on the table. We look forward to a constructive dialogue with Yahoo!’s Board, management, shareholders, and employees on the value of this combination and its strategic and financial merits.
If and when Yahoo! agrees to proceed with the proposed transaction, we will go through the process to receive regulatory approval, and expect that this transaction will close in the 2nd half of calendar year 2008. Until this proposal is accepted and receives regulatory approval, we must continue to operate our business as we do today and compete in this rapidly changing online services and advertising marketplace.
It is important to note that once Yahoo! and Microsoft agree on a transaction, we can begin the integration planning process in parallel with the regulatory review. We can create the integration plan but we cannot begin to implement it until we have formal regulatory approval and have closed the transaction. Because the integration process will be critical to our success as a combined company, we are taking this very seriously. “
On the other hand, Google is not standing idle among other obvious reasons because it owes one to Microsoft from when the latter interfered with Google’s purchase of DoubleClick last year.
Google’s chief legal officer, David Drummond, wrote in the The Official Google Blog:
“Microsoft’s hostile bid for Yahoo! raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It’s about preserving the underlying principles of the Internet: openness and innovation.
Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC? While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies — and then leverage its dominance into new, adjacent markets.
Could the acquisition of Yahoo! allow Microsoft — despite its legacy of serious legal and regulatory offenses — to extend unfair practices from browsers and operating systems to the Internet? In addition, Microsoft plus Yahoo! equals an overwhelming share of instant messaging and web email accounts. And between them, the two companies operate the two most heavily trafficked portals on the Internet. Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors’ email, IM, and web-based services? Policymakers around the world need to ask these questions — and consumers deserve satisfying answers.”
In any case, it remains unclear how the situation will develop and where it will lead to. Google probably can’t stop the deal, but it can delay it considerably, and the delay will certainly act in Google’s interests.
“In the interim, we foresee disarray at Microsoft and Yahoo, We believe the deal has distracted the engineers and should benefit Google over the next 18 to 24 months, providing with a major opportunity to advance in branded advertising.”
as foreseen by analyst Marianne Wolk of Susquehanna Financial Group.
According to Wolk,
“If instead Microsoft is forced to acquire Yahoo via a proxy fight, it would mean a more protracted closing process, then the transaction will not close until early 2009, when it would begin the complex integration of Yahoo’s 14,300 employees, multiple advertising platforms, technology infrastructures, content sites, culture, etc.
Google may not face a more competitive Microsoft-Yahoo until 2010.”
By then, she said, Google could “extend its lead in search monetization” and grab a “major lead in emerging growth areas, such as video advertising, mobile and local advertising.”
Wolk also pointed out that Google would likely find it easier to hire top engineers from Microsoft and Yahoo “as they fear for their jobs in a consolidation.”
My personal bet is that even if the deal goes ahead and Microsoft pours in huge loads of money and resources, it won’t work.
And it won’t because Microsoft will try to apply the same tactics that it has applied to gain dominance over the PC market, i.e. trying to force every user to use their software.
The Internet is totally different. You can’t force people to use your staff. You have to convince them to use it. And in order to do that you have to provide a superior product. Neither MSN nor Yahoo! come even closer to what Google delivers in terms of search results and applications designed for the web.
Much needs to be improved in both MSN and Yahoo! in order to be able to compete with Google.
In the case of Yahoo is a technical issue. I have recently switched from Google to Yahoo’s search engine just to see how accurate the results were and I had to switch back because the difference with Google’s is abysmal, both in accuracy and quality of results.
I kind of feel sorry for Yahoo! because I’ve been a long time user of their services and I can see it going down the gutter, no matter what the final result of the acquisition will be. They have some top-quality services such as Yahoo! Mail or Yahoo! Finance and in many countries in Asia Yahoo! is a real competitor to Google, but they need to innovate so much that I doubt they will ever revert the downward trend.
They are moving in the right direction now with Web 2.0, but I’m afraid that it might be too late.
They have recently announced that they are opening up their Search to third party so that everybody can collaborate in building their search results:
“This open search platform enables 3rd parties to build and present the next generation of search results. There are a number of layers and capabilities that we have built into the platform, but our intent is clear — present users with richer, more useful search results so that they can complete their tasks more efficiently and get from “to do” to “done.”
Because the platform is open it gives all Web site owners — big or small — an opportunity to present more useful information on the Yahoo! Search page as compared to what is presented on other search engines. Site owners will be able to provide all types of additional information about their site directly to Yahoo! Search. So instead of a simple title, abstract and URL, for the first time users will see rich results that incorporate the massive amount of data buried in
websites — ratings and reviews, images, deep links, and all kinds of other useful data — directly on the Yahoo! Search results page.
We believe that combining a free, open platform with structured, semantic content from across the Web is a clear win for all parties involved — site owners, Yahoo! and most importantly, our users.”
Let’s wait and see.
You can see the details at the following links:
And MSN simply doesn’t get it. They’re trying to apply the same centralized tactics that made them so successful in the PC market, but it is evident that they won’t work on the Internet.
By combining both companies you’ll only get a much more cumbersome monster and the Internet is about just the opposite, decentralization and agility.
Many people attribute the initial success of Google to the quality of the search results. That is true today but it wasn’t so in the beginning, when they started to draw users from other search engines. The main reason why most of the people made Google their home page is because it was simple. No advertising or fancy graphics, just a search box and a menu where the rest of services are listed as text links on a page that loads very fast.
By trying to push users into using your services and bloating your front page with advertising, you are actually driving them away.
To be fair Yahoo! does have a version of their home page that is designed that way:
Had they made it to be their front page many years ago, they’d still be game.
Another feature that convinced me to switch to Google many years ago was that they give you the opportunity to try your search terms on different search engines with just one click, with the:
“Try your search on Yahoo, Ask, AllTheWeb, Live, Lycos, Technorati, Feedster, Wikipedia, Bloglines, Altavista, A9″
that used to appear on every search results page.
Same functionality can be achieved nowadays by installing CustomizeGoogle, a highly recommended Firefox extension that enhances Google search results by adding extra information (like the above mentioned links to Yahoo, Ask.com, MSN, etc.) with the added plus of enabling you to remove unwanted information (like ads and spam).
By creating an extremely simple entrance to an environment open to everybody, including their most direct competitors, they have succeeded in being the most popular home page on the Internet.
The KISS approach (“Keep It Simple, Stupid”) is what they used.
Keep It Simple. And Open. Stupid.
- Occam’s razor: “entities must not be multiplied beyond necessity”
- Albert Einstein: “everything should be made as simple as possible, but no simpler”
- Leonardo Da Vinci: “Simplicity is the ultimate sophistication”
- Antoine de Saint Exupéry: “It seems that perfection is reached not when there is nothing left to add, but when there is nothing left to take away”