foobar on computers, software and the rest of the world


Microsoft makes $45 billion bid for Yahoo

, posted: 2-Feb-2008 06:10

Just in case you have been living under a rock today: Microsoft has approached Yahoo with a US$ 44.6 billion offer. The offer represents a 62% premium over the current Yahoo share price. Looks like a good deal for Yahoo's investors.

If this deal goes through, I would be disappointed that Yahoo - as a good alternative to Google - would loose its independence. I have promoted Yahoo before, because Google has become too powerful and knows too much about you and me already. Now Yahoo and MSN would join and achieve a larger coverage, with a greater combined presence across the Internet, and increased capabilities to keep taps on what we are doing online. Less alternatives, less choice. Guaranteed to be bad for us.

But yet, even if you combine Yahoo's US search market share (18.8% and falling) and MSNs share (12% and falling), it is still only about half of Google's share (57.7% and rising). So, if we just talk about search and advertising here for a moment, would this be a merger of two loosers or has-beens, nothing to fear for Google?

I think that acquiring Yahoo is Microsoft's last hope to build significant market presence in that space. Providing desktop and enterprise software has always been their strength. Yet, for some reason, they always played second fiddle (or even third and fourth) when it came to the Internet, net-related technologies or innovation. They simply have nothing compelling to add to this. While in the software and enterprise markets they have existing eco-systems and customer bases, vendor lock-in and ubiquity - all things that can be leveraged for further sales and market penetration - on the Internet they never had anything even close to it. Or in other words: On the Internet, Microsoft really doesn't matter much at all.

As an advocate of free software, I am also disturbed by the proposed deal, because Yahoo actually supported a number of interesting open source projects. What is going to happen with those now if the deal would go through? Yahoo used open source strategically, supporting projects which would commoditise features that add value to their chief competitor (Hadoop, for example). There would be no reason for Microsoft to change that, except that Hadoop is written in Java and is now an Apache project. Microsoft supporting an Apache project? That sounds strange...

And while we are at it: What about Yahoo's heavy use of open source technology, such as FreeBSD for its servers, PHP for its web apps, and so on? Microsoft will not be able to run one of the world's largest web sites without any Microsoft technology at all. That's just not good marketing for its own stuff, is it? So, will it be forced to change from FreeBSD to Windows as server OS? Will all the PHP stuff have to be re-written in ASP.NET, all Java code into C#? Not that extreme for sure, but I think that to keep credibility Microsoft will have to change some of the well-working technology at Yahoo's data centers to use Microsoft's proprietary technology and components. And changes like this always cost and hurt.

So, is this a concern to Google? Probably not as much as one might think. Google share price didn't seem to flinch at all today, from what I can see so far (it dropped over night due to some unrelated earning reports after the bell yesterday). I think there are others who also think that in the long run this acquisition really doesn't matter, and that two loosing strategies combined still result in a loosing strategy. Steve Boyd said it excellently on his blog:
...the Microsoft and Yahoo matchup is like two tired swimmers who bump into each other and then wind up drowning each other in their scramble to survive. But Yahoo will be the first to go under in this embrace.
Great analogy...


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Comment by William, on 2-Feb-2008 09:25

If this goes ahead, it will also have an interesting side effect for NZ's Xtra users. With Xtra having originally being teamed with MSN, and recently migrating to Yahoo.

Soon to be migrated back perhaps? Or change completely again?


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New Zealand


  • Who I am: Software developer and consultant.
  • What I do: System level programming, Linux/Unix. C, C++, Java, Python, and a long time ago even Assembler.
  • What I like: I'm a big fan of free and open source software. I'm Windows-free, running Ubuntu on my laptop. To a somewhat lesser degree, I also follow the SaaS industry.
  • Where I have been: Here and there, all over the place.




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