Microsoft + Yahoo?
Found this one on Paul Thurrott’s SuperSite for Windows. Here is a quick quote from that great post:
On Friday, February 1, 2008, Microsoft unexpectedly announced a massive $44.6 billion offer to purchase ailing online giant Yahoo. Since that time, I’ve been analyzing how this attempted takeover will affect Microsoft and the consumers who use the various online products and services made by both companies. I’ve never been much of a prognosticator, and I’m certainly no business expert. But I’ve been watching Microsoft, Yahoo, and Google for years now, and here’s what I feel are the most important takeaways of this offer, in no particular order.
This is a hostile takeover attempt. Make no mistake: Microsoft’s offer for Yahoo is as hostile as they come, with both implicit and explicit threats to Yahoo’s executive leadership. The deal is structured in such a way that the company’s shareholders would be insane to not accept it immediately, with the $44.6 billion offer representing a 62 percent share price premium. (Yahoo’s stock was trading at just $19 a share when Microsoft presented its offer.) Microsoft CEO Steve Ballmer sent a letter to Yahoo’s board of directors on Thursday, informing them that it would then publicize the offer, and the letter itself, 24 hours later. Thus, Microsoft forced Yahoo’s hand, providing the executive staff with little time to deliberate. Yahoo is expected to formally respond to the offer quickly. But my guess is that shareholders, stung horribly by the Dot Com bust, are eager to accept Microsoft’s Godfather-like offer.
Google is a new kind of competitor and needs to be addressed differently. While Microsoft’s founders and chief executives have over the years expressed a desire to avoid the fate of becoming the next IBM, it’s pretty clear that today’s Microsoft is indeed the same lumbering beast that IBM was by the early 1980’s. What worked in the past–creating a me-too browser product, Internet Explorer, and “integrating” it into their dominant desktop OS product, Windows, in order to defeat an up-and-coming competitor who “got” the new world order, Netscape–won’t work today. The reasons for this are complicated, but they boil down to two salient points. First, Google is now big enough to benefit from the same network effect that made the PC market such a success story for Microsoft: Its dominant product aren’t great per se, but they’re widely used, and thus generate more online traffic, which becomes more valuable to advertisers; that value is then pushed back into the system on the reverse side because Google’s search results become more relevant because of targeted advertising. Thus, the system feeds itself. (Ironically, or perhaps coincidentally, Microsoft’s attempts to duplicate its network effect successes with Windows in other markets, like video games, cell phones, and digital media, have failed miserably.) Secondly, as Apple knows all too well from its efforts in the PC market, it’s almost impossible to make huge gains against an entrenched competitor with dominant market share, no matter how successful you are and how good your products are. Google’s sheer size simply affords it benefits of scale that Microsoft can’t match or catch up to on its own.
Finally, Microsoft is Getting Aggressive. It’s too early to tell if Microsoft’s surprisingly aggressive bid for Yahoo will be seen as the beginning of a corporate turnaround or the final death knell of a struggling dinosaur, but consider this: While far too many people have criticized Microsoft’s behavior in the past, the truth is that the software giant has a responsibility to shareholders to increase the value of the company. This is done via competition, and by defeating those that would steal your customers, market share, and revenues. When a Microsoft executive says he wants to “cut off the air supply” of a competitor, for example, this isn’t a bad thing unless the subsequent actions of the company are illegal: In fact, it’s arguably what a shareholder would want to hear from a person helping run the company. Business isn’t about morality, it’s about winning legally. That said, Microsoft was clearly humbled by its antitrust troubles around the globe during the past decade, and acted in what I think are bizarre ways, betraying it as a company that was clearly losing its edge.
Consider the following: Why would Microsoft spend five years (so far) dickering over technical documentation that would allow competitors to make products that better interoperate with Microsoft’s workgroup server products but then turn around and quickly agree to every single change that competitors demanded in the buildup to Windows Vista? Think about this for a second. On the one hand, you have competitors seeking to interoperate with a non-dominant product. And on the other, you have competitors seeking to weaken your most dominant product of all. You fight voraciously to prevent the former, but you roll over and play dead on the latter? Really? That’s ridiculous, and if I were a Microsoft shareholder, I’d be outraged. As a Windows user, I am outraged: Vista has been compromised by the desires of Microsoft’s competitors, and will be further compromised by the release of SP1.
This hostile bid for Yahoo suggests that Microsoft is ready to start being more aggressive again. And that’s a good thing, really, for users of its products and the hundreds of millions of people that rely on Microsoft every day.
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