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What Microsoft Needs to be Careful About if the Yahoo Acquisition Comes Through
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We have already written about Microsoft’s bid to acquire Yahoo! at $44.6 Billion (the largest ever in the technology industry by the way :o) at a 62% premium over the company’s stock price on Thursday.
According to Microsoft’s estimates, the online advertising industry will increase from $40 Billion today to $80 Billion in 2007.
Microsoft and Yahoo would need to do a significant amount of work to synergize their search index and ad network indexes respectively.
Skeptics might say that Microsoft could have easily hired more engineers and closed the gap. The skeptics forget the power of branding. The industry is growing and the leaders are consolidating their positions. It should be noted that Microsoft has quite good products in the Web Space - Their Maps platform is extremely competitive (maybe better than Google for India based Searches!) - they just haven’t been able to innovate fast enough; always playing catch up to Google and Yahoo! So they aren’t perceived innovators. Part of that may have to do with the fact that the Web is not in Microsoft’s genetic make up - Servers and Desktop Operating systems form the nucleus of Microsoft’s DNA. And that probably gets translated into culture - and again that’s probably where the biggest problem lies.
Culture is possibly the most underrated word in business. Yahoo! thrives on the web, while Microsoft has made most of it’s progress offline. There will be obvious differences in the way problems are approached and policies followed. If you’re a Microsoft fan, you should hope that the Yahoo! culture will shape things up at Microsoft and force it’s executives to do a rethink on the way they conduct businesses online (if the acquisition goes through i.e.).
Other than culture - the other serious concerns are email and other web portals. Both Microsoft and Yahoo! offer email as well as an array of web portals. What happens to existing users who have signed on for existing services on Yahoo! and MSN respectively? From a purely objective perspective - integrating the 2 brands for search is also easier said than done. Ad networks would be relatively easy to integrate as they are back end and are not the ‘face’ of either company. Also fewer consumers interact with ad networks as opposed to the number of users integrating with search, email, and other web portals.
The bid, if accepted will probably change the course of online developments in the future and will be a turning point in online history. But as Steve Ballmer himself has said - ”Any large integration process has risks associated with it,”
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Following blog entry shows a comparison of hits between the yahoo, google and msn.
http://blogs.ittoolbox.com/emergingtech/puneet/archives/comparing-microsoft-yahoo-google-22228
This gives some idea as to why MSoft is after yahoo. The future is not in selling application licenses but is in SaaS and using web as a platform.
44 odd billion is 6 billion less than what could have been the orginal value of Yahoo. Taking into account the competition that it is gonna overhaul (Inhouse Competition from Yahoo itself), the value of Yahoo can be much better than that.
With loads of fund funneling by MuSoft into Live Search and now the acquistion of Yahoo is definitely gonna give Google the biggest challenge ever. (Most of the google products are still in Beta Stage including Gmail).
Onlie Advertising Economy is overestimated and the projections of Market Value looks more virtual in this article.
Web Market needs a consolidation and this is first good step happening, hope it doesnt end up with another monopoly by Micros.
The acquisition is going to be more like the Adidas acquisition of Reebok.
You won’t see integration of stores (websites and social services)