Friday, February 1, 2008

Some Quick Thoughts About Microsoft's Offer to Buy Yahoo!

By now most have heard about Microsoft's proposal toYahoo!'s board of directors to buy Yahoo! at $31 per share (Yahoo! closed yesterday at $19.18). Here's a piece from the letter Steve Ballmer sent to the Yahoo! board:

Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers. Synergies of this combination fall into four areas:
-- Scale economics:  This combination enables synergies related to scale
economics of the advertising platform where today there is only one
competitor at scale. This includes synergies across both search and
non-search related advertising that will strengthen the value
proposition to both advertisers and publishers. Additionally, the
combination allows us to consolidate capital spending.

Expanded R&D capacity: The combined talent of our engineering
resources can be focused on R&D priorities such as a single search
index and single advertising platform. Together we can unleash new
levels of innovation, delivering enhanced user experiences,
breakthroughs in search, and new advertising platform capabilities.
Many of these breakthroughs are a function of an engineering scale that
today neither of our companies has on its own.

Operational efficiencies: Eliminating redundant infrastructure and
duplicative operating costs will improve the financial performance of
the combined entity.

Emerging user experiences: Our combined ability to focus engineering
resources that drive innovation in emerging scenarios such as video,
mobile services, online commerce, social media, and social platforms is
greatly enhanced.
There's been rumors of this merger for the past couple of years so it comes as no big surprise to many. It's also no secret this is a direct move to try and head off Google. Each Yahoo shareholder will be able to choose whether to receive consideration in cash or in Microsoft common stock.

Microsoft is ready to move fast on this - we'll see what Yahoo does.


Unknown said...

Gordon - this makes sense on many levels: Yahoo seems to be looking for some leadership, MS hasn't been able to jump start their search initiatives, and the obvious benefit - combine resources to fight Google.

Where this could be problematic is in merging two companies with very distinct identities - which become dominant or do they operate somewhat independently while sharing resources and expertise.

If you compare this to a marriage, I see this as an arranged marriage between two prominent families - but you gotta wonder are they compatible? Are they in love? Unfortunately I don't think those - what they share is Google as a common rival - is that enough to make the marriage work?

As a postscript - I love Flickr and would hate to see MS tinker with Flickr or other Yahoo products.

Gordon F Snyder Jr said...

Mike - betcha they'll keep both brands and it will become more like a partnership - at least initially.
I like your post "Microsoft - Yahoo: Combined Financials" at