Exactly ten years back, I watched a story of three people. Rahul, Anjali and Tina. Today, I write about three companies. Three companies that are known to shape the course of Web. The three 
people were connected by love. The three companies are connected by competition. Until now, the companies were operating independently. But suddenly, each one has begun to shape the destiny of the other. Just like the three people. And while the whole nation stayed tuned to that story, the world seems to be waiting impatiently for the nail-biting climax of this story.
So, is it inevitable? Will MS lap up Yahoo ? You bet.
Yahoo’s board is clearly trying not to end up with Microsoft
. Many might be wondering why Yahoo has not said a word about Microsoft’s antitrust reputation, when it could have. I will tell you why. By the unsaid laws of Mergers and Acquisitions, companies are usually averse of discussing the buyer’s antitrust position; that make both the companies end up in an embarrassing situation should the deal goes through. Instead, the target company always tries to put off the deal on the price front, thus trying to show the shareholders that it’s them that they are fighting for. This, however, leads to a deal, as price is something that can easily be worked out. Especially if the buyer is Microsoft.
So, instead of saying anything about Microsoft’s reputation, the board of Yahoo will press harder for a higher price for Yahoo. Microsoft offered a price of $31 per Yahoo share at the time when it was trading for $19. A 62% premium over its share value. Shareholders. needless to say, will be more than happy to let Microsoft have Yahoo. And it’s this heat that Yahoo is facing right now.
Let’s have a look at the options that Yahoo has.
(1.) Says Yes and embrace the MS tag
Shareholders and investors, more than happy. Each one gains some. Yahoo brand lives on. Microsoft integrates its web services and OS to Yahoo’s.
(2.) Says No.
Yahoo can only say No to Microsoft’s offer on the price point. As I said earlier, there by showing the investors that it’s a better price that it’s fighting for. Then however, it will have to have some kind of arrangement with some other investor. Probably Google? Yahoo, the brand might be lost as the agreement might force Yahoo to put Google search box on Yahoo home page. Yahoo, in this case, doesn’t seems to gain much. Google, on the other hand, gains everything that it could have ever asked for. A whopping 75%+ share of the online search market.
Google CEO Eric Schmidt has reportedly been in touch with Yahoo CEO Jerry Yang, trying to figure out some sort of deal under which Yahoo will outsource its search business to Google.
So, really, what options do Yahoo have? I found the following matter in an online article titled Yahoo Running Out Of Options
It looks as if Yahoo will be dragged down the aisle by its suitor, Microsoft, no matter how loudly Google speaks its piece.
On Monday, other potential mates with deep pockets denied they would try to beat Microsoft Corp.’s $44.6-billion offer even as investment bankers tried to help Yahoo remain unhitched.
But Yahoo Inc.’s board of directors can’t simply say no to such a strong offer without providing a better alternative, analysts said, and few options have emerged that wouldn’t outrage shareholders or antitrust regulators.
“Yahoo does not want this to happen,” analyst Charlene Li of Forrester Research said.
“But I’m not sure it has much of a choice.”
And that, is pretty much what the truth is. Yahoo needs a solid reason to say No to Microsoft’s offer. It needs to convince its shareholders that it has a better alternative. If it can’t, it has to accept Microsoft’s offer. Saying No to Microsoft would possibly result in a shareholders rebellion.
With the drama getting political, each side has started lobbying to attract authority’s attention. Microsoft has been lobbying to inform the senate and the concerned authorities about the deal and its beneficial aspects. Authorities hate surprises and Microsoft knows
that. Google has been shouting about foul play, too. Microsoft made a huge hue and cry about the antitrust issues when Google bought DoubleClick. Google’s crying is not just about striking back. This is about business. This is how.
Globally, advertising is a $ 400 billion business. What Microsoft is aiming at is not just online advertising, but a far wider domain of digital advertising which will encompass, in the not-so-distant future, all digital mediums like cell phones, PDA’s, set-top boxes (and hence TV screens), gaming consoles, MP3 players and much more. As we see the emergence of a more connected world, we will have more and more people accessing content on all these hyper-connected devices. And the pie of digital advertising will keep growing. Yahoo is one company that has the kind of content that can be fed up to all these billions of devices. The recent takeovers of the new-age digital marketing agencies by conventional advertising conglomerates prove that digital advertising is going to take up in a big way.
Google knows this, and it wants to keep Microsoft away from all that money. It has been lobbying to generate interest against Microsoft’s Yahoo bid. It has gone so far as to contact Yahoo and offer any assistance in combating Microsoft. However, Google will not make an offer for Yahoo’s outright buy. That’s ‘coz of regulatory issues. As of end of 2007, Google had a 58% share of the search market. Yahoo had 17%. A Google-Yahoo merger will create an entity that will have a market share of 75% +. That will be a strict no in the eyes of the antitrust authorities. So, Google buying Yahoo is clearly out of question.
There are opinions on how Microsoft should focus on its core business and should not buy Yahoo. An article by Fortune magazine had the following to say,
Microsoft is buying an empty bag. At the risk of climbing even further out on a limb here, let me make an alternative suggestion. Microsoft should move in the opposite direction: Unbundle what it already has. Get rid of everything that isn’t core! Microsoft is the monopoly provider of desktop operating systems. Guess what? It’s a great business! (Or would be if it did a better job of improving it rev to rev. Vista was a disgrace.)
Want to juice the stock price? Get rid of everything that’s unrelated to the business of improving the OS — search, xBox, Zune, etc. That OS, by the way, is quickly starting to move up into the cloud. It’ll be enough of a challenge to maintain Windows’s dominance as that happens.
It will take incredible focus and innovative thinking to maintain Windows. Don’t get distracted by Google (which, by the way, ought to get back to it’s knitting, too. Targeted search is a great business. Google (GOOG) ought to get out of everything else and it’s stock price would double.)
That, in my opinion, however, is the most stupid advice that someone could give Microsoft. Knowing Microsoft, I can say that once they are determined, they do whatever it takes to emerge triumphant. Remember Playstation was always a leader in gaming consoles when Microsoft introduced Xbox. It, didn’t work. They introduced Xbox-360, and that is giving some serious competition to Sony’ Playstation 3. Again, iPod was the
leader in portable music player market and anyone even attempting to thwart that position would have been termed a lunatic. Figures say Zune 2 has been doing pretty descent business lately. Again, in online rich media platforms, Adobe’s Flash is considered somewhat of a de facto standard. Microsoft introduced Silverlight last year to combat that, and the reports have been good.
So it’s clear that Microsoft would never want to stay out of the race for online ad-revenues. Online search is still closer to Microsoft’s original business (rather than “core business”) than either gaming consoles or portable music players. Microsoft has to crack it. The current bid only shows how determined it is.
So, Yahoo will end up in Microsoft’s kitty eventually.
Microsoft is a technology behemoth and Yahoo, practically, is a media house (minus the TV channels and Radio Stations and Printing press). Combining the tech prowess of Microsoft with the media reach of Yahoo has the potential to offer the kind of content, in a manner that will touch all the aspects of a user’s life. Yahoo already has online channels on most of the domains from politics to entertainment to sports to fitness. The business of online ads thrives on the model that the user spends more time on the Internet. If the content can be presented to him in a seamless manner, the possibility of a user spending more time on MS-Yahoo platform than Google’s increases manifold.
The possible “bundling” of Microsoft’s OS with Yahoo’s offering can offer content within a 
familiar environment, thereby creating the ease-of-use experience for the user. So, in a totally connected world, we could have services like weather, news and stock prices are automatically delivered at appropriate places within our working environment.
Microsoft would do well to keep Yahoo as the face of everything Web that it attempts. Online, brand Yahoo is stronger and has a higher perceived value than Microsoft. So, while the applications might be developed by MS-Yahoo joint effort (no, no “sole Microsoft” developer working on any projects. They need to have the sex appeal of Yahoo services), they will be pushed by the Yahoo brand.
The up point of a MS-Yahoo deal is that Yahoo lives on. One of the sexiest things about Yahoo is it brand. And if the folks at Redmond are even 30% as intelligent as I imagine them to be, they will work damn hard to promote and push that brand. Microsoft is amazing at marketing, only this time it needs to push Yahoo aggressively.
Some services might be merged like Microsoft’s photo-sharing service may be merged with Flickr, the messengers can be unified and the MSN home page can give way to content from Yahoo. But I see most of the Microsoft’s services being merged in Yahoo.
Paul O’Brien, a six year veteran of Yahoo and the head of marketing at local events search startup Zvents says
“Yahoo will never catch up with Google in search. They can continue to be a portal, but there is not much room for growth there. But Yahoo is still a sexy company. Combining with Microsoft puts their properties in front of everyone who has a computer. If I were still at Yahoo I would think this is good news, it’s a new opportunity and new blood.”
New blood. New face. Yahoo. That’s what’s in store for the consumer Internet. Microsoft would do great service to the consumers and much more than that, to itself, to keep Yahoo alive. As a brand.
