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Microsoft Finally Makes Its Move on Yahoo

Posted by: Rob Hof on February 01, 2008

For all the reasons a Microsoft acquisition of Yahoo! doesn’t make sense, one factor trumped them all: a bargain. Early this morning, Microsoft made an unsolicited bid for the Internet pioneer for $31 a share, 62% higher than Yahoo’s closing price of $19.18 yesterday. Yahoo’s stock has fallen far enough that, even though Microsoft is offering $44.6 billion for a company the market valued at only about $25 billion (until now—the stock’s up about 50% this morning, for a market cap of $38 billion), it was too much of a steal to pass up.

At such a premium, which likely will go higher, it would seem that Yahoo would be hard-pressed to turn down such a deal—even though the company surely preferred not to sell at this time. If it goes through, we suddenly have a two-horse race on the Net, with Microsoft-Yahoo the one force with a chance to slow down search giant Google.

But what a messy combination this will be, for months and even years to come. Maybe Yahoo is just too compelling a property for Microsoft, perennially struggling to stem the Google tide, to pass up. Clearly, Yahoo hasn’t managed to get its act together fast enough. But neither has Microsoft—even less so vs. Google than Yahoo.

And putting together two huge organizations like this is going to slow both down for a long time, while the Google juggernaut merrily barrels down the road, more focused than its competitor. What’s more, big tech mergers often don’t work. Even less often do hostile takeovers work. Put them together, and the results won’t be pretty. Yahoo has already been losing lots of people, and while some may welcome the relative stability of Microsoft, I’m not sure it’s those people who will be the most valuable going forward. Google, Facebook, and a raft of startups will have even sweeter pickings among restless Yahoos.

In the long run, if the deal happens and Microsoft manages to recharge growth in Yahoo properties—which after all collectively are still the main place most people on the Net go—a formidable force may emerge. But for the foreseeable future, Google rules.

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Reader Comments

Roger Davis, PhD

February 1, 2008 12:24 PM

I think the winner in this deal is Google. The problem with Microsoft and Yahoo isn't their marketshare, it's their vision of the future. Both companies represent corporate cultures where the suits rule the geeks. And that's the death of any internet company, simply because the creativity necessary to keep up just doesn't exist anymore. Google and Apple are both masters of vision and buzz. When you think of sexy, you don't think Yahoo or Microsoft. A merger of these two companies benefits Google. Reason is, it's much easier to kill them together, while the suits are speaking their language of spreadsheets and consolidations, than kill them separately, when a new vision might actually have a chance to take root.


February 1, 2008 12:28 PM

Yahoo has driven a lot of SMBs away from it's services. The result is to cause many to migrate to a functioning service.

We tried many of Yahoos offerings, seems that the messenger is the only product we liked.

Many of the offerings of Microsoft are mangled, just look at the ever changing login method. A way to manage a users services without so much fuss.

Adding a loser service to an already mangled service seems to be a step backwards.


Sally in Chicago

February 1, 2008 01:20 PM

Yahoo would have helped itself by having an Online "Live" customer service rep to answer questions & solve problems like Ebay does.

Yahoo would have helped itself by aggressively competing against EBay with an auction site. Yahoo would have helped itself by updating and maintaining it's failing and old email system.

There was a lot of promise with Yahoo but they blew it.


February 1, 2008 01:27 PM

If you look at it this way both companies have bin around for a while microsoft and yahoo they both have more experience than google who cares if google is looking at a better future combine these to companies and there will be no futur for google why 2 heads are better than one


February 1, 2008 01:33 PM

Yahoo! would like to be like Microsoft when it grows up. Yes, it is not like Apple and Google however, I do not think it makes it a bad fit synergistically. What Mr. Davis, PhD does not account for is that Yahoo! had plenty of time in the early years to let the geeks run the company, it worked only to a certain point after which the slide began.

As a former Yahoo! Manager during and after the bubble, I can attest to a company struggling to form an identity and direction where they want to go today, to use an old. Microsoft slogan. Yahoo was a weekend away from owning eBay; it could have taken its FinanceVision platform and tried to collaborate with CNBC or MSNBC, two glaring failures.

It was not for a lack of coolness that stifled Yahoo, it was a lack of leadership and execution. It was due to bad timing, buying for 5 Billion dollars and then jettisoning it a few years later without much to show for it.

While Microsoft is not a pure-play internet company like Google or Yahoo! with a very “corporate” culture has nonetheless been able to foster innovation with projects like Photosynth: as well as TablePC..

I think if Yahoo! employees can embrace Microsoft and hear a coherent direction for their future the geeks will sign on, a direction is better then no direction.

IPTV Evangelist


February 1, 2008 04:10 PM

I think people have forgotten how long and hard Microsoft fought to establish Windows.

Google is just a bunch of math geeks who got lucky. Besides the online ad market nothing else that Google has done has really worked out.

So my bets are on Microsoft.

Dr. Serendipitous

February 1, 2008 07:52 PM

Microsoft does well in software and, to a lesser extent, software driven electronics business. Not so on the Internet, and that's why it is throwing a big money at the like of Yahoo. To be sure, Yahoo has the traffic, but is it really worth $44.6 billion?

I doubt it. After all, MS can probably get the number Yahoo is pulling by giving away a new car every hour of the day for the next whole year at MSN, and the price tag will be about $200 million.

If MS really wants to leapfrog Google, it should have spent the money in the current FCC frequency auction to buy up both the C and D blocks, then make C block as fee based open access, and D block as limited access (accessible only with Microsoft devices) but without fee.

Had MS owned those broadband frequency blocks, it would have been able to incorporate its strength in software and hardware in a seamless way with web service that would have been difficult for Google or anyone else to match. Lost opportunity--again

Dale in Chowchilla CA

February 1, 2008 08:45 PM

The Geeks will not be killing a MicroHoo merger anytime soon. Sometimes you anti-Microsoft geeks think a little to highly of yourselves. All they (MS) need to do is kill the term 'Directory' at Yahoo and make Yahoo a Search Engine again like it was in the beginning. They need to let go of the control freek Yahoo stuff and embrace FREEDOM of information again (like Google does)! Yahoo will rock again with the right focus and Yahoo POP access e-mail built into Windows.... without the crashy Outlook platform PLEASE!

Michael Durbin

February 1, 2008 11:13 PM

What will they do with Zimbra. It competes with Exchange.


February 2, 2008 06:38 AM

Follow the money. Yahoo has been bleeding it for years. That is inexcusable in running a for-profit business. Now, at bargain basement prices, Microsoft (or some other company) will pony up major coin to own the brand name. The brand name is the primary sizzle and snap to this deal.

Nalliah Panneer Chelvi

February 2, 2008 09:16 AM

The suggestions given by Mr.Balmer in his letter were great. It will be a great opportunity to Yahoo to merge with Microsoft. When a giant company can not sustain its competitive advantage against the competitor then its better to merge with the next leader to compete with the main competitor. In future the combination of Microsoft and Yahoo will emerge as the strongest competitor to Google.


February 2, 2008 12:10 PM

Acquiring Yahoo will make Microsoft a real net player, particularly in areas of dispay ad and paid search ad, from the market share perspective. Whether or not Microsoft can make the merger work, however, is a big question. The difference between Microsoft corporation culture and the distinct Yahoo culture can be too big to overcome.


February 27, 2008 07:45 PM

perhaps microsoft is buying yahoo to bury it then go after google by buying it for $500 billion if msft is not slow enough to bury yahoo first or goog will hit one trillion before to long

william dorsey

May 5, 2008 05:59 PM

they are all wrong!

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