Microsoft Buying Yahoo

Earlier this week I wrote about the departure of Meg Whitman, and how the "last men standing" of Web 1.0 are slowly leaving the stage. Only 48 hours later and Microsoft is finally making its highly expected move – a bid to acquire Yahoo.

If some strange reason this is news to you, check out all the financial details here. Beyond the details, here are some thoughts regarding this acquisition:

1. Microsoft is Oracle envy: Finally, after many rumors about Microsoft "planning to", "offering", "in conversations with" the big industry players, they have finally put an offer to buy a huge industry player. The biggest Microsoft acquisition to date was Aquantive, back in Q2 2007. The bid for Yahoo is almost 8x larger. What business-as-usual for Oracle almost every quarter (Hyperion, Siebel, BEA, Peoplesoft), is quite new for Microsoft. In the past there were rumors about Microsoft merging with SAP (Would have been a larger merger, SAP is currently worth almost $60bn), but that did not happen.
2. Late Move: Microsoft is in chase mode for a long time. They want/need to compete with Google, and have not been successful on most fronts. In the search space this seems to be a move that is a bit too late. The combined market share of both Yahoo & Microsoft in search is small (18% + 12% = 30%), and has been declining. Combining 2 failing search engines will probably not help against the market leader.
3. Early Move: The other side of this acquisition is upcoming battle in other areas of advertising, beyond search related. With Google buying Doubleclick, Microsoft is trying to gather forces to be a fair competitor in display advertising and potentially new and upcoming ad formats (in-game, video, etc.). It seems that Microsoft/Yahoo will have a strong offering in the non-search related advertising world.
4. The IT World is Consolidating: Overall, there is strong consolidation in the Information Technology world. Large players are been taking off the table (Cognos, Business Objects, Yahoo. In 5-10 year perspective, remember Compaq, Siebel, Peoplesoft). This reflects the maturing part of the industry. It is also a blessing and a curse for the venture capital industry. On one hand, these huge players are becoming so fat, that their ability to compete in fast emerging markets is declining. The market is being opened for new startups that may have the ability to grow $1bn companies. On the other hand, the number of acquirers is reduced. Yahoo and Microsoft were competing on the Web 2.0 startups, pushing prices up. With one of the big buyers out, the ability of VCs to make money declines.
5. Israeli angle: Just this month, Yahoo announced the opening of an R&D center in Israel. This was an important move for the Israeli Internet scene. With an "on-the-ground" presence in Israel, the probably of Yahoo to acquire an Israeli company went up. If Microsoft gobbles up Yahoo, the Yahoo R&D office in Israel will become part of Microsoft Israel, an organization that has been around for at least 15+ years. In other words, the "Yahoo Israel" news from earlier this month becomes irrelevant.
6. AOL: Any buyers?

And a final word about Web 1.0. It's amazing how the big names of the late 90s have all disappeared or disappearing. The 2 names that come to mind are Excite and Netspace. Amazing that Yahoo is on the way to join this group.

 

Comments

[Avishai]

Do you think MSFT really believes it can pull off this deal despite the fundamental differences in the companies and EU regulators breathing down their necks?