February 1, 2008
Danny Sullivan is working hard providing updates and analysis as things unfold. What things? In case you hadn’t heard, Microsoft has made a bid for Yahoo! It offered $31/share, which represents a value of $45B and a premium of 62%.
In its letter to the Yahoo! board, Microsoft identified four areas of synergy (I quote):
- 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.
- Expanded R&D capacity.
- Operational efficiencies: Eliminating redundant infrastructure and duplicative operating costs.
- Emerging user experiences… such as video, mobile services, online commerce, social media, and social platforms.
At first glance, I find the first of these the most convincing. The second makes me reflect that Microsoft’s already huge R&D capacity produced Vista, while much of the software I like came from smaller, leaner organizations. Flickr is a case in point. I think that Yahoo! didn’t mess with Flickr, and I hope that Microsoft won’t.
“Operational efficiencies” mean more layoffs, in addition to the 1000 announced at Y! before the Microsoft bid. I’m not sure how many there might be, and how they might be distributed between the M and Y! sides. As for the last of the four areas: the buzzwords about “emerging user experiences” don’t add much to the case for the deal.
The Yahoo! board will give this offer very serious consideration. It would be hard to claim that Y! looks more ready to take on Microsoft and Google than it did when Jerry Yang took over as CEO six months ago.
To make more adventurous and premature predictions: the deal will go ahead; post-acquisition integration will be very difficult; Google doesn’t need to worry.
Update, to correct a couple of typos, and to note that Paul Kedrosky’s view is similar to mine, and he makes the Google point more vividly.
This is good news for Google, of course. It gives the company carte blanche for other large acquisitions, if needed, and, more importantly, it means that two elephants will be busily mating out back so that it can march merrily in the confusion to further share gains in both search and advertising.