KnowledgeForward

Microsoft Offers to Buy Yahoo for $44.6B

Computerworld reported today that Microsoft offered to buy Yahoo for $44.6B

Microsoft Corp. today offered to buy Yahoo Inc. for $44.6 billion in cash and stock to better compete with Google Inc. in the market for online services.

CEO Steve Ballmer made the offer in a letter to Yahoo’s board of directors yesterday, telling the board that he would release the letter this morning.

On a conference call this morning, Microsoft’s president of its Platforms & Services division Kevin Johnson called a combination of Microsoft and Yahoo a more “credible” alternative to Google in the online advertising and services market.

“By combining the assets of Microsoft and Yahoo, we can offer a more competitive choice for consumers, advertisers and publishers,” he said.

There have been rumors of this for quite some time:

• 2005: ZDNet speculated about Yahoo and Microsoft teaming up to better compete with Google: “As it turns out, in true enemy-of-my-enemy-is-my-friend fashion, Yahoo and Microsoft have a mutual problem in Google. … Given that Yahoo and Microsoft were already chummy with each other on the multimedia front, why not merge their walled gardens to increase the utility of both in hopes of heading off any more defectors (end users) from taking in oodles and oodles of Google (at the expense of everyone else). ”
• 2006: SearchEngineWatch blogged that “Yahoo & Microsoft Have Talked Partnering, Merging”
• 2007: BusinessWeek reported “In the battle of online search, Microsoft is again courting Yahoo, according to media reports”

Of course, you could probably pick any two technology titans and find enough written about them to connect a thread.  But this seems more than random chance since there are obvious synergies, but one issue that makes me question the long term value.

Looking at it from a marketing point of view it’s a very good move.  Yahoo offers strength in web advertising, social computing, and web-based email where Microsoft is weak.  They have overlapping (and expensive) assets in search and categorization that can be consolidated and trimmed.  They also offer great talent and intangibles around web 2.0 and a disruptive, creative mindset.

From an infrastructure point of view I’m a bit more dubious.  Yahoo seems to favor the kind of Java, Unix, and open source tools (Apache, FreeBSD, Perl, PHP, Linux) you’d expect out of a young company out to challenge the powers that be.  If Yahoo has a huge number of very bright programmers that are almost religiously dedicated to Unix-based platforms and development they may not want to switch.  For scale reasons I’m sure Microsoft would allow this subset of the company to continue along that Unix path (I’m not saying they’d force mass conversion at the point of a sword), but it would take some restraint not to try injecting Windows servers and .NET into newer offerings and slowly alienate the staff. 

So, in summary, I think from a financial view it probably looks good (win/win for both sides), from a marketing view it looks good (fills in weaknesses of Microsoft and allows for consolidation of operations), but longer term the risk associated with the assimilation of Yahoo into Microsoft (and therefore the odds of capitalizing on the assets they are acquiring) may be even higher than normal for tech companies.