Whether the outcome would be Micro-hoo or Ya-soft the outcome would be the same, a new combined power that may be able to put some heat on Google to maintain their control on search and online advertising. This is not new speculation, actually last year Microsoft was in the same role as they have assumed recently:
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| The Great Search War or Search War I? |
Competition is the thing that Microsoft has not had to directly face for some time, and Yahoo knows what it feels like to be on top, but both have not been able to touch Google in the department of search and search driven revenue. As Google looks to other areas, like radio, television and newspapers, to generate additional revenue streams, this might be the optimal time for these two tech giants to seize an opportunity (that may or may not exist). The only thing that I can see, outside looking in, is that Google has never really been tested in their core competency, search. This could expose weaknesses that might be there, but I dont see that either Yahoo or MSN could accomplish this independently.
I know that the dust has settled, for now at least, but there could be something there today that might never be there again (an opportunity)! - Microsoft + Yahoo = ???
This time Steven Ballmer wrote a letter directly to Yahoos Board of Directors, this time with a bit more teeth than last years bid noting their lack of growth that was the main concern with not accepting Microsofts bid:
In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction. According to that letter, the principal reason for this view was the Yahoo! Boards confidence in the potential upside if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.
and continuing with a solid plan (at least on paper) to the reason that the board and stockholders would be interested in the merger:
While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers. Synergies of this combination fall into four areas:
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 that will strengthen the value proposition to both advertisers and publishers. Additionally, the combination allows us to consolidate capital spending.
Expanded R&D capacity: The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform. Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search, and new advertising platform capabilities. Many of these breakthroughs are a function of an engineering scale that today neither of our companies has on its own.
Operational efficiencies: Eliminating redundant infrastructure and duplicative operating costs will improve the financial performance of the combined entity.
Emerging user experiences: Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced.
Could they pull it off?
We may not know yet, as Yahoo has made little response over the news, however Google has appeared to be quite concerned. They took a whole day to build and publish a response to this development (via Official Google Blog):
The openness of the Internet is what made Google ” and Yahoo! ” possible. A good idea that users find useful spreads quickly. Businesses can be created around the idea. Users benefit from constant innovation. Its what makes the Internet such an exciting place.
So Microsofts hostile bid for Yahoo! raises troubling questions. This is about more than simply a financial transaction, one company taking over another. Its about preserving the underlying principles of the Internet: openness and innovation.
Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC? While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies ” and then leverage its dominance into new, adjacent markets.
Could the acquisition of Yahoo! allow Microsoft ” despite its legacy of serious legal and regulatory offenses ” to extend unfair practices from browsers and operating systems to the Internet? In addition, Microsoft plus Yahoo! equals an overwhelming share of instant messaging and web email accounts. And between them, the two companies operate the two most heavily trafficked portals on the Internet. Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors email, IM, and web-based services? Policymakers around the world need to ask these questions ” and consumers deserve satisfying answers.
This hostile bid was announced on Friday, so there is plenty of time for these questions to be thoroughly addressed. We take Internet openness, choice and innovation seriously. They are the core of our culture. We believe that the interests of Internet users come first ” and should come first ” as the merits of this proposed acquisition are examined and alternatives explored.
WOW! Sounds like Google is a bit concerned about the prospects of Microsoft who has the dominate OS and Yahoo! with a significant following joining forces that might be able to slow Googles efforts at building office solutions, email and other user desired applications in Microsoft and joining a stronger search presence in Yahoo! Really, it seems like a good match for the two and these types of opportunities dont come easy or frequently.
With that, Microsoft fired back:
Today, Google is the dominant search engine and advertising company on the Web. Google has amassed about 75 percent of paid search revenues worldwide and its share continues to grow. According to published reports, Google currently has more than 65 percent search query share in the U.S. and more than 85 percent in Europe. Microsoft and Yahoo! on the other hand have roughly 30 percent combined in the U.S. and approximately 10 percent combined in Europe.
Microsoft is committed to openness, innovation, and the protection of privacy on the Internet. We believe that the combination of Microsoft and Yahoo! will advance these goals. Press Release
And so, The Great Search War has begun, or Search War I if you prefer!
The next bomb came from a third-party source, The Wall Street Journal:
Google Inc. Chief Executive Eric Schmidt called Yahoo Inc. CEO Jerry Yang to offer his companys help in any effort to thwart Microsoft Corp.s unsolicited $44.6 billion bid for Yahoo, say people familiar with the matter.
It is considered unlikely that Google would itself bid for Yahoo because of regulatory concerns related to their large shares of the search and online advertising markets. But the people familiar with the matter say Google could play a role in attempts by others to outbid Microsoft, or by Yahoo to remain independent. Google could potentially offer money, or guaranteed revenue in return for a Yahoo advertising outsourcing pact, under that scenario, say people familiar with the matter. Even such involvement by Google would likely attract antitrust scrutiny because of concerns that competition between the two Silicon Valley Internet companies could be reduced.
Many of us on the sidelines have cheered or booed the concept and when there was the reaction from Google, many cried fowl. Personally, the idea that Google should be able to maintain such a commanding lead in search and online advertising and try to block this would be one of the most evil things that they could do!
I know that this is an election year, and it has been some 8 years, in the US, since we have not had an incumbent in the election for the President (No, I dont think that Hillary should be considered an incumbent!), but this appears to be a much more active campaign for votes than the primary elections. Is this what we have to look forward to in the general election?
Back to the action Steven Ballmer sent an email to everyone at Microsoft to educate them of the situation and outline their plan, but on the following Monday, via a SEC filing, we see what Yahoo is thinking via a confidential email to their troops:
Subject: more on todays news
fellow yahoos:
since we talked to you this morning, theres been a lot of media coverage and industry chatter about microsofts unsolicited proposal to acquire yahoo!. we know youve been hearing and reading a lot about this. thats why we wanted to reach out to all of you at the end of the day to emphasize a few things that we hope will give you some more context about this proposal, the process that our board is taking, and what you can expect in the days ahead.
first, we want to emphasize that absolutely no decisions have been made ” and, despite what some people have tried to suggest, theres certainly no integration process underway. this proposal is just that ” a proposal. and it was only made in the last 24 hours. you can be sure the board is going to review it thoughtfully and carefully, and do whats right for our great company. microsofts proposal is one of many options that were evaluating in order to maximize value for our shareholders and employees over the long-term. thats why we will respond to microsoft after our board has completed a careful review of all of our strategic alternatives.
second, we cant let any of the noise were hearing around this situation distract us from our core mission. its critical that we continue to focus on running our business, executing our strategy and delivering value to all of our users, advertisers and publishers.
finally, we realize that this may have been a tough day for many of you, especially those on the front lines of our business. we know you have many questions, and were committed to making sure youre as informed as possible as this process moves forward. in the interim, we both want to thank you for your continued energy, focus and determination. well continue to share information with you as we have it and can do so.
And then the users spoke:
Flickr users are openly protesting the idea of Microsoft acquiring Flickrs parent company, Yahoo. A Group has opened up called MICROSOFT: KEEP YOUR EVlL GRUBBY HANDS OFF OF OUR FLICKR where users can upload protest photos.
And more news as to how Microsoft plans to make this move:
If the Microsoft bid for Yahoo goes through, Reuters says that they might have to borrow money to make it happen.
Its likely were actually going to borrow for the first time, said -Microsoft CFO Chris- Liddell in an annual strategy meeting with analysts. Its going to be a mixture of the cash we have on hand plus debt.
Jerry Yang then rallied the troops to stay focused and that no decision had been made:
as weve said, no decisions have been made about microsofts proposal. our board is thoughtfully evaluating a wide range of potential strategic alternatives in what is a complex and evolving landscape. and weve hired top advisers to assist through the process.
Everyone in the practice knows that this is not over, but what is apparent is that Microsoft and Yahoo! have to do something to address the growing presence that Google has gained over the years if they want to continue to be a valuable property on the Internet and not be relegated to the history books and Wikipedia!
One thing that is for sure is that this episode will lay boundaries that are not currently as visible:
Yahoo rejects Microsofts bid (without help) - Strong Yahoo, Weak Microsoft, Google Unchanged
Yahoo rejects Microsofts bid (with Googles help) - Weak Yahoo, Weak Microsoft, Google Stronger
Yahoo rejects Microsofts bid (with others help) - Troubled Yahoo, Troubled Microsoft, Google Unchanged
Yahoo accepts Microsofts bid - Stronger Micro-Hoo/Ya-soft and Google Concerned
Yahoo appears to be using this to leverage their value to their stockholders and users, but this will only keep them up for a little while. If they decide to reject the offer from Microsoft or accept, they will need to start turning a profit on the same scale as Google to keep their presence secure.
I guess we will have to wait, will it be round 4 between Microsoft and Google, or be the final decision from Yahoo we shall see. No matter the outcome it has led to quite the drama!
A couple of other questions have not been answered yet:
Will Google come out looking like Yahoos David to Microsofts Goliath? or
Will Microsoft look like the school mate teaming up with Yahoo to battle the class bully Google?
Not just the future of search, but a BIG public opinion adjustment might be in our future!
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Tag: Microsoft, Yahoo
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