I was just casually talking about this with an early ex-Yahoo yesterday. We were just pondering the possibilities for Yahoo in 2008. Holy shit -- what a coincidence.
He said this: A Microsoft deal is unlikely because (when he was there) all the Yahoos hated Microsoft. If an acquisition happens, it'd be hostile and the core guys will jump ship.
As a current Yahoo I'd have to disagree, from what I've seen in my department (and the departments in my building), I don't think the company is particularly hostile to Microsoft. Plus, the stock price is so low that I think a lot of Yahoos would welcome a big change, if for nothing else then to boost their portfolio.
At the very least I'd be interested to see how Microsoft could integrate such a huge company properly. I had discussed the idea 6 months ago when the rumor began to surface, the big question (if it happens) is how the two cultures and systems would merge...I think it would take years before they would actually operate as one company.
It's simple. Half of you will all be fired and Yahoo will merge with MSN to create a monstrosity web division. The overlap in web products will create 3 tiers of service, the windows-ized integrated Live products (Live Mail, Live Search), the consumer centric Yahoo products (Yahoo Mail, Yahoo Search), and the pro-sumer products (Inktomi Search, Flickr, Delicious). This will be so confusing and stupid that after 2 or 3 years of Google eating their lunch they're fire the rest of the Yahoo staff and shutter off the Yahoo branded products in favor of the Live products.
But also, let's not kid ourselves, Microsoft could give two shits about Flickr. What they really want is Yahoo/Overture/Panama or whatever. That's the expected growth and cash cow that makes this deal possible.
You forget that Yahoo has over 120 properties, what about things like Yahoo Autos, Real Estate, Shopping, Finance, etc? There's significant overlap with what MS offers, yet Yahoo is clearly kicking their asses in many of these. I highly doubt MS would kill off the more-popular site/name for their own, especially if it could give competition a chance to jump in as the new #1.
Also, things like Flickr and Delicious could do very good things to MS's perceived image in future generations, so there's more here than just cash.
Why does Yahoo have over 120 properties and 14,000 people but only make 660m in net profits? Microsoft has already declared that this merger will create a 1 billion operating efficiency. Guess where that's going to come from?
And Yahoo might have more popular destination sites but Microsoft has the lock on operating system. MSN/Live is seen as a cloud computing services for the _future_, Microsoft would rather saving those than the multiple Yahoo turds. How's Brickhouse doing? They pumping out hits yet? How about 360? Mash? Pipes? What about those landing pages for products? That whole group is gone.
Most of the hardcore people from Flickr, ie. those whining separate login people, will be jumping ship the second this deal is inked. Instead you'll just end up with a shell of a service but again, Microsoft could care less. They'll just slap it on to Windows Pictures like they slapped Hotmail onto Windows Mail. And the masses will gobble it up because to them it doesn't matter.
If anything, this will be great for Windows 7 if it ever comes out. On your computer is Microsoft, on the web it will be Microsoft apps with Yahoo names and the products will actually not suck as bad. What Yahoo also needs to do is to properly tie in all its features and properties to formulate a social network. They have every single parts required but just lack the skeleton to bind it all together. Hmm... What company does Microsoft have an interest in that's like a social network... Hmm...
EDIT: As an addendum to this, I just read Gruber's opinion on the merger and he agrees with my premise. Microsoft culture will pounce Yahoo culture. Yahoo's products (web1.0/2.0 lamp stacks) will be naturally converted to Microsoft technology (yay windows 2000!) because at the end of the day the Borg can't stop. So if you have a job at Yahoo it's best to polish up your resume and if you're a Yahoo user be ready to get a Windows Live account. The name might be Yahoo but the backend's going to be .NET and if it's not Flickr or Delicious then most likely you won't be able to use it.
I wonder if anything has changed since the days of hotmail. I recall everyone gloating over all the trouble they had trying to move that from FreeBSD to NT. IIRC, Yahoo does not use a lot of MS products on their servers... maybe I'm wrong, or maybe MS will be less insistent about pissing away lots of time transitioning to their tech?
I was just chuckling to myself about that: Yahoo being forced by MS to ditch all that 'patent-infringing' stuff on their servers for the 'superior' MS alternatives. Oh, and of course, our very own pg's offspring would become owned by his favourite company!
"Early this morning Goldman made an awfully timely call, putting out an analyst note at 3:56am PST suggesting that Microsoft should buy Yahoo -- only to freeze analyst coverage of Microsoft at 6:55 AM PST on the news that Microsoft has offered to buy Yahoo and it is providing i-banking support"
http://paul.kedrosky.com/archives/2008/02/01/yahoomicrosoft....
One thing quite a few people are failing to notice when describing the "huge" premium of 62%: look at Yahoo's historical stock price charts for the last few months or so. Yahoo's taken a real big hit, likely for several reasons that are beyond its control, and it might very well be undervalued. This could be a great chance for MS to give an offer price that Yahoo was trading at a month ago but now seems generous.
it's rare to see such simple, fundamental and spot on analysis in the tech world.
microsoft's bid on yahoo is a perfect illustration of why microsoft is doomed to failure.
how many startups could they fund with $45 billion? 100? 200? 1000? why exactly do they want to be at the helm of a slowly dying web portal left over from the first dot com boom?
i remember someone talking of microsoft and relating their situation to a victim in a horror film. we can all see the monster lurking behind them, slowly creeping in for the kill. when the sea change of personal computing really does come, whenever that may be, microsoft will not be there, they will be knee deep in shit, trying to claw themselves out of the hole that they've spent the last five years tirelessly digging.
>> how many startups could they fund with $45 billion?
100? 200? 1000? why exactly do they want to be at the helm
of a slowly dying web portal left over from the first dot com boom?
I understand the "startups are king" mentality around here, but come on. Regardless of their quarterly performance, Yahoo! is one of the biggest brand names on the web. Microsoft won't establish a bigger web presence by "funding startups."
Exactly. When companies get as big as MS, they need big wins. Big companies never seem to be interested in or capable of managing and dealing with lots of small deals - perhaps it would be too much of a hassle chasing a lot of small fry even though a few will eventually take off.
Microsoft buying Yahoo is like Microsoft(1) buying Microsoft(2). Both companies are huge, with dying net brands, and both are being cut to pieces by Google (and probably soon enough Facebook). I don't see the great synergy, and they definitely not paying that for a great product pipeline. My only guess is they want the search/ad system. That seems to be the only thing that makes Microsoft(2) != Yahoo.
my point is that they could get a lot more bang for their buck elsewhere. yahoo is a dying brand.
if they invested that $45 billion in 45 one billion dollar projects, if at least one of them had an annual net of more than $700 million/year, they are doing better than buying Yahoo.
First Yahoo messenger and MSN messenger joined networks. This was a reasona next step. yahoo is not completely worthless. In many parts of the world Yahoo dominates the IM market and in email Yahoo and Microsoft have a much bigger market share worldwide. yahoo also owns sites like Flickr and Delicious, both of which are better than their Google counterparts.
yahoo also has deals to provide email for many ISPs in the US.
I think Microsoft could benefit from the increased market share in many areas.
Sure they could fund a lot of startups. But how would you manage 1000 startups - hire 50 in-house VCs?
Better to let former MS employees bet their own cash on startups, which MS then gets to pick and choose and buy the ones they find most interesting.
And don't write off Yahoo's presence in the Third World, like China, Philipppines, India, etc. As those economies grow Yahoo's user base there will be more valuable.
"Microsoft is desperate to grab a bigger share of the online-advertising market because many of its software products are being challenged by free, advertising-supported services offered by Google. The company is also worried that Google's dominance in search and advertising allows it to dictate terms to advertisers, and gives it an unfair advantage over its smaller rivals."
naw, they are the 1600lb gorrilla now. No matter how incompetent they are, they have enough momentum and cash to just smash thru obstacles (either buy or try to fail other startups).
Interesting move especially in the context of a recent Garner report predicting bad times for Microsoft (http://www.news.com/8301-13860_3-9862322-56.html?tag=nefd.to...). Obviously, this acquisition doesn't help Microsoft improve Vista or Office, Microsoft's cash machines. Also, does this offer imply Microsoft is less confident about their Live initiative? Will Ray Ozzie be replaced by Jerry Yang?
Some seemingly minor issues make me wonder how bad a situation Yahoo is in. Google has integrated their messenger into chat well enough that you can search through chats, grouped separately, as well as send messages of either kind to people you have contacted through chat or email. This makes a whole lot of sense, and I would think is relatively easy to accomplish. However, Yahoo's messenger is a bloated spam attracting monstrosity that seems like an estranged sibling to Yahoo's equally hideous email service; all the distressing genetic similarities but no conversation. Now how can a company that couldn't integrate two obvious candidates from their own bundle of services do in Microsoft, which isn't any better at integrating its own cluster? I don't see synergy.
You don't have to read much of the business literature to discover that mergers and acquisitions, especially at this scale, rarely produce the expected synergies. All in all, I think this is good news for Google.
Holly... For some reason I imagine MSFT as the big borg spaceship coming close and just swalloing this smaller ship called yahoo, and casting a large shadow into google and the whole valley area.
I for one think it is a good idea. Maybe with Microsoft's start page, Yahoo search could get more traffic and the recognition it deserves. Microsoft Online Services could be scraped completely, nobody would miss them.
Server tech would be a concern, but who knows - perhaps rather than switching everything to Windows servers, Microsoft might take the chance to become acquainted with Linux and BSD. It would make sense if MS would in the future simply release a theme for Gnome, rather than waste resources on another OS that nobody wants.
Stock prices are weird. The current value is where half the people think the price is too low and half the people think the price is too high. Of course everyone who still has Yahoo stock think that the price is too low--because everyone who thinks the price is too high has already sold their shares.
So everyone who still holds any given stock thinks that the market price is too low.
A simpler explanation is that everyone holding a stock wants it to go up so they can profit. When it goes up to a point where they don't think it's too low, they sell it, and hence no longer own it. So everyone that owns a stock thinks it's too low.
>So everyone who still holds any given stock thinks that the market price is too low.
Only true in a limited sense. For instance, a majority holding the stock up until today might have just thought that the market price was way too high for how the company is performing, but that the presence of one or more misguided, irrational, drowing-in-money, potential aquirers out there meant that there was a large chance they might get a large upside off one of the fools--turns out they were right =).
It's easy to cheer on Google, as Google as they systematically takes on established vertical markets (to sell advertising) and do fairly well in some of them. Why not root for the underdog, Yahoo + MSFT?
Because it's fun to cheer on the underdog if the underdog is better and the established players are just bumbling idiots holding down the underdog via cheating and uncompetitive strategies.
Trying to claim that YHOO/MSFT is (technically) better than Google and that Google is just a bumbling idiot trying to hold down YHOO/MSFT via cheating and uncompetitive practices is a bit of a stretch, even for the seriously deluded among us.
I can't be certain but I think you're being sarcastic :P
The reason is because Google WAS the underdog. Yahoo and Microsoft were the established giants. After 5 years or so the situation has almost reversed, though, with Google making (and buying) the killer apps and the other two players stuck in a game of follow the leader.
In 2007,
Microsoft's net income was: $14 Billion.
Yahoo's net income was: $660 Million.
Google's net income was: $3 Billion.
I doubt that Yahoo's board and shareholders will accept the deal. It would be a good way for Microsoft to spend some of it's extra cash, though without getting in to regulatory trouble.
People buy stock to make money, and a 62% premium is good money. I doubt shareholders would reject the deal unless they think Yahoo is worth more than that. I doubt they would reject it because of some sort of amorphous anti-Microsoft sentiment.
"We have dedicated considerable time and resources to an analysis of a potential transaction and are confident that the combination will receive all necessary regulatory approvals."
If the biggest advertising entity on the web (Google) can buy one of the other biggest advertising entities (Doubleclick), I'm pretty sure one of the also-rans can buy another also-ran.
The difference is there is practically no lock-in in advertising systems--Microsoft has demonstrated repeatedly that it will use it's OS monopoly to unfairly leverage things online. If you think they have failed miserably, consider that it was only because of the anti-trust rulings that beige box makers got the right to change the start page.
Also, much of Google's "monopoly" comes from a source that is heavily protected by law: the pagerank patent. Patents are government granted monopolies with limited time; as such, there is little or no legal recourse as any mildly abusive behaviour is expected, tolerated, and what the system was designed to provide.
yeah good point but they are not losing money and I think you will see google do the same thing in a few years once they hit the peak for their products.
Yahoo's problem seems to be the management and the fact they are still playing catch up with adsense.
On the other hand, Hotmail being run on Windows shows that MS believes the server editions of Windows to be stable enough for their own use, implying that it should be stable enough for whatever you might need to do, too. Keeping customers from switching to *nix is of immense value to them.
Sure they did. Microsoft's internal infrastructure and corporate culture is very Windows-centric (obviously). Maintaining a totally alien FreeBSD-based infrastructure for Hotmail would be very expensive in the long run, and make integration with the rest of MSN prohibitively difficult. Which is to say, it would directly interfere with one of the main goals of the acquisition in the first place.
They would have needed to vastly overhaul and rebuild the infrastructure multiple times to scale the site and add new features, anyway. The question is just whether to do those overhauls as part of a transition to Windows or not -- and I think the answer is that moving to Windows obviously makes sense in the long run, even disregarding the non-zero PR benefits.
Actually they got a huge benefit. They had internal users doing a high-volume stress test on Windows and associated middleware, so a lot of bugs got found and fixed. The products now are noticeably more reliable.
The market is reacting very positively: Yahoo is up almost 60% in pre-market trading, at a market cap of $40B (up from $26B at yesterday's close).
Microsoft is down 4% however.
Microsoft is offering $31 per share of Yahoo. YHOO is now trading at nearly $31, up from $19 at the close yesterday.
Why would anyone pay $31 for a share of Yahoo right now? There are two possible outcomes: 1) the deal goes through, and you get your $31 back either in Microsoft stock or cash. No net gain. 2) The deal doesn't go through and YHOO drops back to around $19, losing you about 30%.
When you hear "Microsoft makes a surprise, unsolicited offer to buy Yahoo!", that means there hasn't been any negotiation yet, and that this is the minimum offer (they can accept it right now; the only downside is the risk that they don't pass the reg approval process). Now, you gave two possible outcomes, but as others have mentioned there is a third: a counter offer for more money.
(yet another outcome is that Yahoo twiddles it's thumbs and Microsoft rescinds the offer, but in that case you can look forward to getting in on a nice shareholder class-action lawsuit against the board)
This always happens with buyout offers, the buyee's stock price shoots up close to the amount of the buyout offer, but never reaches it. It generally stops a couple dollars short of the buyout price. At this moment, Yahoo is trading at $28.25, still low enough to make a sure-thing couple of bucks per share. It's a gamble though. If the deal falls through, or gets blocked by the government, the buyee's stock price drops back down to where it was before the offer .
Everyone thinks they know so much more than the market. In this thread so far I have seen you claim the stock always goes (slightly) lower than the offer, and another guy express puzzlement as to why YHOO even managed to exceed the offer at times today. I hope neither of you were trading BEA Oracle offered ~6 billion, BEA rejected it, and 3 months later Oracle offered ~8billion and BEA accepted. One other thing to keep in mind (this is more picking on the other guy than on you) is that when these deals are announced they are often largely made up of stock (Microsoft is so buried in cash that might not be the case here). If Yahoo! accepted the offer right now, it still might end up with a different future value. Luckily it is not to hard to factor that out by purchasing various positions or leveraged vehicles in or relating to Microsoft/whoever-the-aquirer-may-be.
I was not trading BEA when Oracle made the bid to buy them out. Why? What happened to BEA's stock price during these two offers? Did it not move at all? Did it go beyond the offer price? Somewhere in between?
This rumor is over a year old; it was also first floated around Q1 last year and YHOO's stock price surged that time too. I seriously thought Yahoo was going to sell that time but they didn't. Perhaps this time is different?
Before it was a rumor. This time there's an actual official looking document outlining the offer on MS's website. I think that qualifies as "different."
While technically possible, you'd be hard pressed to find many companies that could put up that kind of money, even fewer actually in the industry (no Wal-mart doesn't count), and even fewer that could pull off the financing in today's debt market.
Microsoft is sorta uniquely positioned to make this offer at this moment.
1. Find something Yahoo currently does well (e.g. flickr)
2. Make a clone of it.
3. Wait for Microsoft to ruin the original.