M&A Merger and acquisition
M&A Microsoft-Yahoo: Will it Work?
Auteur : Internetnews
Du : 05/02/2008
It may be the right move on paper, but making it work isn't going to be easy.
That was the general consensus among several analysts following Friday's blockbuster announcement of Microsoft's $44.6 billion takeover bid for Yahoo.
"If Microsoft and Yahoo join forces it will be the most important event in the Internet industry this year, without a doubt," said Ken Cassar, vice president for industry solutions analytics at Nielsen Online.
According to Cassar, the combined entity would be visited by 86 percent of U.S. Internet users, account for 15 percent of all time spent online, and represent 59 percent of online display ad impressions sold which he said is "really the most significant revenue generator today for most online publishers."
But even if Yahoo execs and its board sign off on the deal, not a given, there are still many unanswered questions – not the least of which is whether antitrust regulators in the U.S. and Europe will approve.
A Microsoft acquisition of Yahoo has been rumored for months, and Microsoft CEO Steve Ballmer confirmed on a conference call early Friday that talks had been going on between the two companies for 18 months.
In addition, there are no guarantees that such a merger would accomplish much more than move Microsoft from a far third-place in search engine usage to a still far second-place by gobbling up its nearest competitor.
Web statistics tracking firm NetApplications' search engine statistics for January 2008 show Google way out in front with 77 percent of global searches, followed by Yahoo with just over 12 percent, and Microsoft trailing way behind with a total of slightly more than 6 percent divided between MSN and Live Search. A combination of Yahoo and Microsoft would control less than 20 percent of the entire market.
Of course, while not directly convertible into cash, search share is a strong indicator of how many advertising dollars those searches yield for ad purveyors.
Creative Strategies analyst Tim Bajarin is bullish on the potential of a Microsoft/Yahoo combination. He notes Yahoo is actually stronger than Google on the content side and has good partnerships with DSL providers. "When you bring both company's research groups together and you can imagine a powerful set of engineering teams working on the next generation of search," Bajarin told InternetNews.com. "There's a real need for something more precise than what we have in the market today."
A Google spokesperson said it would be "premature" to comment on Microsoft's proposed purchase of Yahoo.
For Microsoft, the acquisition stands to help it put its online services businesses in the black. Microsoft announced last week that in the first two quarters of fiscal 2008, its online services initiatives lost $510 million. That includes $245 million in losses for the quarter ended December 31.
In contrast, Yahoo brought in income of $206 million in the final calendar quarter of 2007. Which is not to say Yahoo doesn't need help.
Whereas Yahoo's revenues have been declining, Microsoft overall had another record quarter in terms of revenues and earnings. Between increasing revenues and its huge cash horde, Microsoft is well set to absorb the expenses involved in buying out Yahoo.
"Yahoo was in trouble [and] they were really losing direction chasing Google [because] nobody could be a better Google than Google," Rob Enderle, principal analyst at the Enderle Group, told InternetNews.com.
One thing is for certain – Google will do all it can to derail the deal, just as Microsoft tried its best to short-circuit Google's pending purchase of online advertising giant DoubleClick.
"Google will make it as difficult as possible for Microsoft, including raising antitrust issues, bidding up the purchase price, and fishing for top Yahoo employees," Enderle said.
Antitrust issues may not provide much traction for Google, however, given that the combination of Microsoft's and Yahoo's businesses would still create a much smaller competitive presence than Google's dominant market position, analysts said.
"Microsoft can make a pretty strong argument that the combination shouldn't be viewed negatively from an antitrust standpoint," Dwight Davis, vice president at researcher Ovum, told InternetNews.com.
In fact, Bajarin said the proposed merger could have a silver lining for Google.
"I actually think from a regulatory standpoint it's very good for Google," said Bajarin. "As Google becomes more dominant they could face a harder time dealing with antitrust issues in the U.S. and from E.U. regulators, but I see that less of an issue if Google has more legitimate competition."
A Web 2.0 culture clash?
Less clear are questions regarding culture clash between the Web 2.0-oriented "Yahoos" and the more buttoned-down "Microsofties."
"There's a great potential for culture clash [because] there's no love lost among [Yahoo's] execs for Microsoft," Davis said. Analysts say a top priority will be to not alienate Yahoo's technical staff, the developers who have made the search firm successful. If they are unhappy, they'll leave, which would be a big loss for Microsoft.
One former Yahoo employee isn't sure how Microsoft would impact the culture, but thinks the deal has the potential to boost morale if there aren't big layoffs. "We delivered some great products the past few years but the perception, ever since GMail, is that Yahoo was playing catch up with Google," Jesse Wolfe, an application developer who left Yahoo in November, told InternetNews.com. "Something has to be done to shake things up."
The shake up in this case will take a long time to sort out. The 451 Group said in a report that the deal will give Microsoft better Web search than it has, but no better than Google's. Also with Yahoo, Microsoft gains a strong advertising platform, potentially better than Google's. "But the aQuantive deal muddies the water a little; Microsoft is still integrating that with its own AdCenter platform, and now it would have three ad platforms with which to grapple," notes 451 Group.
Another plus for Microsoft are popular and valuable properties like Flickr and Yahoo Finance, which 451 Group said Microsoft "would do well to leave alone. It also gives it better webmail than it has ever had, but again, no better than Google's."
For all the speculation, there is still a lot that can happen that could cause the deal to fail – either before or after the check has been signed.
"A merger with Yahoo isn't necessarily going to be a panacea that solves all of Microsoft's problems," said Michael Gartenberg, research director at JupiterResearch in a blog entry. "The details are what will matter, particularly in how these two very different companies will be able to integrate their efforts. The real work isn't going to be getting a deal done. The real work starts the moment the ink on the contract is dry."
Ovum Summit's Davis agrees, but is optimistic. "I think there's a fairly decent chance that, after a fair amount of integration, pain, and time, Microsoft has the potential to make it work," Davis added.
That was the general consensus among several analysts following Friday's blockbuster announcement of Microsoft's $44.6 billion takeover bid for Yahoo.
"If Microsoft and Yahoo join forces it will be the most important event in the Internet industry this year, without a doubt," said Ken Cassar, vice president for industry solutions analytics at Nielsen Online.
According to Cassar, the combined entity would be visited by 86 percent of U.S. Internet users, account for 15 percent of all time spent online, and represent 59 percent of online display ad impressions sold which he said is "really the most significant revenue generator today for most online publishers."
But even if Yahoo execs and its board sign off on the deal, not a given, there are still many unanswered questions – not the least of which is whether antitrust regulators in the U.S. and Europe will approve.
A Microsoft acquisition of Yahoo has been rumored for months, and Microsoft CEO Steve Ballmer confirmed on a conference call early Friday that talks had been going on between the two companies for 18 months.
In addition, there are no guarantees that such a merger would accomplish much more than move Microsoft from a far third-place in search engine usage to a still far second-place by gobbling up its nearest competitor.
Web statistics tracking firm NetApplications' search engine statistics for January 2008 show Google way out in front with 77 percent of global searches, followed by Yahoo with just over 12 percent, and Microsoft trailing way behind with a total of slightly more than 6 percent divided between MSN and Live Search. A combination of Yahoo and Microsoft would control less than 20 percent of the entire market.
Of course, while not directly convertible into cash, search share is a strong indicator of how many advertising dollars those searches yield for ad purveyors.
Creative Strategies analyst Tim Bajarin is bullish on the potential of a Microsoft/Yahoo combination. He notes Yahoo is actually stronger than Google on the content side and has good partnerships with DSL providers. "When you bring both company's research groups together and you can imagine a powerful set of engineering teams working on the next generation of search," Bajarin told InternetNews.com. "There's a real need for something more precise than what we have in the market today."
A Google spokesperson said it would be "premature" to comment on Microsoft's proposed purchase of Yahoo.
For Microsoft, the acquisition stands to help it put its online services businesses in the black. Microsoft announced last week that in the first two quarters of fiscal 2008, its online services initiatives lost $510 million. That includes $245 million in losses for the quarter ended December 31.
In contrast, Yahoo brought in income of $206 million in the final calendar quarter of 2007. Which is not to say Yahoo doesn't need help.
Whereas Yahoo's revenues have been declining, Microsoft overall had another record quarter in terms of revenues and earnings. Between increasing revenues and its huge cash horde, Microsoft is well set to absorb the expenses involved in buying out Yahoo.
"Yahoo was in trouble [and] they were really losing direction chasing Google [because] nobody could be a better Google than Google," Rob Enderle, principal analyst at the Enderle Group, told InternetNews.com.
One thing is for certain – Google will do all it can to derail the deal, just as Microsoft tried its best to short-circuit Google's pending purchase of online advertising giant DoubleClick.
"Google will make it as difficult as possible for Microsoft, including raising antitrust issues, bidding up the purchase price, and fishing for top Yahoo employees," Enderle said.
Antitrust issues may not provide much traction for Google, however, given that the combination of Microsoft's and Yahoo's businesses would still create a much smaller competitive presence than Google's dominant market position, analysts said.
"Microsoft can make a pretty strong argument that the combination shouldn't be viewed negatively from an antitrust standpoint," Dwight Davis, vice president at researcher Ovum, told InternetNews.com.
In fact, Bajarin said the proposed merger could have a silver lining for Google.
"I actually think from a regulatory standpoint it's very good for Google," said Bajarin. "As Google becomes more dominant they could face a harder time dealing with antitrust issues in the U.S. and from E.U. regulators, but I see that less of an issue if Google has more legitimate competition."
A Web 2.0 culture clash?
Less clear are questions regarding culture clash between the Web 2.0-oriented "Yahoos" and the more buttoned-down "Microsofties."
"There's a great potential for culture clash [because] there's no love lost among [Yahoo's] execs for Microsoft," Davis said. Analysts say a top priority will be to not alienate Yahoo's technical staff, the developers who have made the search firm successful. If they are unhappy, they'll leave, which would be a big loss for Microsoft.
One former Yahoo employee isn't sure how Microsoft would impact the culture, but thinks the deal has the potential to boost morale if there aren't big layoffs. "We delivered some great products the past few years but the perception, ever since GMail, is that Yahoo was playing catch up with Google," Jesse Wolfe, an application developer who left Yahoo in November, told InternetNews.com. "Something has to be done to shake things up."
The shake up in this case will take a long time to sort out. The 451 Group said in a report that the deal will give Microsoft better Web search than it has, but no better than Google's. Also with Yahoo, Microsoft gains a strong advertising platform, potentially better than Google's. "But the aQuantive deal muddies the water a little; Microsoft is still integrating that with its own AdCenter platform, and now it would have three ad platforms with which to grapple," notes 451 Group.
Another plus for Microsoft are popular and valuable properties like Flickr and Yahoo Finance, which 451 Group said Microsoft "would do well to leave alone. It also gives it better webmail than it has ever had, but again, no better than Google's."
For all the speculation, there is still a lot that can happen that could cause the deal to fail – either before or after the check has been signed.
"A merger with Yahoo isn't necessarily going to be a panacea that solves all of Microsoft's problems," said Michael Gartenberg, research director at JupiterResearch in a blog entry. "The details are what will matter, particularly in how these two very different companies will be able to integrate their efforts. The real work isn't going to be getting a deal done. The real work starts the moment the ink on the contract is dry."
Ovum Summit's Davis agrees, but is optimistic. "I think there's a fairly decent chance that, after a fair amount of integration, pain, and time, Microsoft has the potential to make it work," Davis added.