Back in May there were rumors circulating that Microsoft was going to buy Yahoo. At that point I thought about my old, basically unused Yahoo account and decided that it was time to cancel it. Good thing I got that out of the way, since today I woke up to find that Microsoft has apparently been in negotiations on-and-off for a year and a half and finally made an offer: $44.6 Billion US
And oh boy I am smiling :)
Now you might find that curious, since I am clearly in the ‘death-to-Microsoft’ crowd, but all you have to do is think about this for a little bit. First, Yahoo is something Microsoft wants really badly to fight off their nemesis Google, so they’re willing to pay a huge premium for it: 62% more than its stock value. So right there, some $17 Billion of Microsoft’s giant cash hoard goes poof. But Yahoo may demand (and get) even more. That Microsoft has a huge reserve of available funds has concerned me, but if they’re going to spend money like this, bad things are going to happen there if the revenue stream begins to dry up a bit down the road.
Holy crap. In my opinion, this is a huge demonstration of fear, desperation, and dim-dog market tail-light chasing greed on our part. Every acquisition represents our failure to use our 70,000+ employee base to solve a solution or create a new market. Rather than buying back stock or pushing out a dividend, shareholder money got mis-invested in a hugely overpriced acquisition. And you’re a shareholder why?
Next, I totally see MS screwing up the merged Yahoo (and in case you were wondering what the merged company will be called, its “Microsoft”. Yahoo will be merged into the MS online ad fiefdom, er, division. There’s a reason MS is nicknamed the “borg“). It should be remembered that the only thing profitable at MS is Windows and Office; their online ads will likely become just the latest money pit in an attempt to keep up with Google. I love John Dvorak’s seething incredulity at the proposed merger:
“It would be an impossible pill to swallow, a corporate culture marriage-nightmare, and an admission by both companies to ultimate defeat at the hands of Google. I was convinced that these two companies cannot be so stupid as to not know this deal is a bad idea. I was wrong.”
“the biggest threats to a Microsoft-Yahoo deal are Microsoft and Yahoo. [...] combining these two legendary bureaucracies, no matter what the synergy looks like in a press release, will be a nightmare in the already confused corridors of Santa Monica, Seattle and Sunnyvale. As we pointed out earlier this year, Microsoft’s culture is slow and cautious—and that’s the last thing Yahoo needs an injection of right now. [...] Of course, Microsoft often moves slowly for a very good reason: It doesn’t want to cannibalize its cash cows. While Google can launch online spreadsheet and word processing applications, Microsoft can’t respond without damaging its powerful Office software business. Elsewhere, it’s more of the same: Everywhere Microsoft makes money, the Web poses almost intractable dilemmas.”
Mini-MSFT sees the potential for good things (and possible layoffs of redundant staff at MS; oh my!) but with a caveat…
If the buy goes through, it will be one huge turning point for Microsoft: I think we’ll either turn it around brilliantly and our mega-investment will be worth it, or we’ll be turn asunder and revert back to our core cash cows.
Of course, that assumes that MS will always be able to coast along on Windows and Office profits. The future of MS without those is perhaps too terrible to contemplate (see above, “down the road”).
The only ones I feel sorry for are the Zimbra users who are getting all freaked out right now. But anti-trust concerns might get them to spin that off before the merger is complete. [Update: Oh and also flickr users, but there's not much hope for you, sorry ]:
Update on media coverage:
Mary Jo Foley thinks its a bad idea:
“Until today, I felt like Microsoft had done an admirable job keeping focused on its core Windows/Office/enterprise software business, in spite of pressure by many Wall Streeters, market researchers and venture capitalists to chase Google.”
But Joe Nocera at the NY Times goes beyond that and rips into MS in a way that I’ve rarely seen from the mainstream press!
“if its proposed acquisition of Yahoo signals anything, it serves as a confirmation that Microsoft’s glory days are in the past. Having failed to challenge Google where it matters most — in online advertising — it has been reduced to bulking up by buying Google’s nearest but still distant competitor. In many ways, the company has become exactly what Bill Gates used to fear the most — sluggish, bureaucratic, slow to respond to new forms of competition — just as I.B.M. was when Microsoft convinced that era’s tech behemoth to use Microsoft’s operating system in its new personal computer. [...] the old strategies that once worked so well for Microsoft — strategies that worked when the world still revolved around Windows — have no place in this new world. [...] Today, Microsoft lacks both the weaponry and the nimbleness to compete with Google. Its operating system monopoly gives it no advantages in this battle. People can use Microsoft’s operating system and browser to get to the Internet — and to Google — or they can use Apple’s. It truly doesn’t matter. Meanwhile, with every new Internet fad, like the current frenzy over social networking, Microsoft is invariably caught flat-footed and has to race to just get a foot in the game. But that’s always the way it is when companies get big — and it is why real innovation always comes from small companies that don’t have a predetermined mind-set, or monopoly profits to protect.“
Media Update 2: Microsoft & Yahoo – Yep, We Can Say Goodbye to Both
after 9 months, there won’t be a Yahoo – MS will chase away all the non bureacrats at Yahoo and merge all the sites into MSN/Live. 50-75% of the regular users at Yahoo will pick up and leave and while MS might hold 30% of the online “potential capacity” of internet search, they’ll have spent $45 billion to buy maybe 5% more users and more ad dollars … at what cost? MS will have tapped all their reserves and go into long-term debt for perhaps the first time since their early days – not a smart way to spend $45 billion. But try telling Steve Ballmer he’s not smart about technology is like trying to convince a 3-year old he should eat the lollipop later.
And Mini posted an update with this foreboding section:
And then: Ballmer. This will certainly serve as a transition out of the Gates era. Is Ballmer an Ahab figure, chasing the white whale of Google once and for all by roping two whaling ships together? If I write a book on my years at Microsoft one day, will it start out as “Call me Mini,” as I reflect on the Microsoft flotsam and jetsam swirling around the world? I hope not. This will serve to define Ballmer, however. All online decisions and strategies have led to this point. And the scale of leadership required to pull success out of this bold move is, to tell you the truth, beyond any accomplishments I’ve seen so far. I have hope, but not much to back it up.
Update Feb. 9: Yahoo plans to reject the offer, saying that they won’t accept anything less than $40/share, or a total value of >$55 Billion. Will Ballmer go nuts and agree or go on a chair-flinging rampage and try a hostile takeover? Time will tell! 8-)
Update May 6: Wow. Ballmer blinked.