Feb 02 2008
microsoft and yahoo = yacrosoft?
I know this isn’t China specific news, but it was too big to pass up on: Yahoo and Microsoft combining to fight Google. From CNN Money yesterday morning:
Microsoft’s (MSFT, Fortune 500) bold 1980s-style bear hug of a merger offer for Yahoo (YHOO, Fortune 500) is great news for all investors, not just Yahoo’s, who are getting a 62% premium.
Microsoft is making a calculated bet that adding Yahoo to its growing stable of its Internet assets is the company’s best chance at catching up to Google (GOOG, Fortune 500) in the online advertising race. And Microsoft is making this bet at a time when Yahoo is hurting. It is a savvy, opportunistic deal that could pay huge dividends over the long haul.
Some are saying that this will revive competition since Google is too dominant. David Kirkpatrick at Fortune writes:
Search remains the Web’s best business. That’s where the lion’s share of ad dollars are spent, and Google controls more than 60% of it. Together, Microsoft and Yahoo will own almost 30%. If they can hold onto it that’s enough to be a meaningful competitor.
Microsoft controls a huge and multifaceted Web presence, and retains still-almost-unlimited financial resources. The combination of all that with Yahoo’s superior Web brand and deeply entrenched position as a marketplace for display advertising and online media is probably the only one that can begin to match the Google machine.
And since search is a game of scale, the two combining companies each acquire exponentially greater power than either could command on their own. Like buyers and sellers of goods on eBay, both buyers and sellers of search ads want to do business where there is the largest number of counterparties.
Forgive me for disagreeing with this analysis. I wasn’t the only one critical of this deal. Josh Quittner at Fortune blogs wrote:
The Valley view, then: Yahoo (YHOO) will be Microsoft’s AOL. Microsoft is paying too dearly for too little. When AOL and TimeWarner (TWX) merged, the Street went crazy with the wonderful possibilities that the synergy would bring: Combine AOL’s online reach with TimeWarner’s content? What a no-brainer! A no-brainer is right.
What exactly is Microsoft buying here? Technology? Yahoo has been managing a declining asset since Google invented a better way to do search, then figured out how to sell (And sell! And sell!) relevant ads against its superior results. Technologists? Talent has been fleeing Yahoo Central since Terry Semel got there — and the fact that co-founder Jerry Yang returned to get the company back on track hasn’t yet lured any of those Smart Dudes back.
Nope—Microsoft is buying an empty bag.
I agree wholeheartedly. In the U.S., I don’t think Microsoft gets much. I love some of Yahoo’s stuff like eGroups (aka Yahoogroups) and Yahoo Mail, but for Microsoft to think that I will use Yahoo search just because it is now Yacrosoft search? I think not. In fact, if MS tries to make the Yahoo portal more like MSN, I think they will lose a lot of customers. (not including me, because I don’t use Yahoo or MSN as a portal anyways) I think that this acquisition will end up being a poor business decision. MSN Livesearch and Yahoo will continue to hemorrage market share because Google’s search capability is just superior. Period. I don’t think it will be an AOL, but it will hardly be revolutionary for either company involved.
And for China, this really has little effect. Yahoo has failed in China, and having MS come in won’t make Yacrosoft search viable in China. Net effect in China: zero. Net effect in America: minimal at best. Just my prediction.
