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Microsoft Offers to buy Yahoo! for 44.6 billion!

Feb 1st, 2008 | By | Category: Google AdWords, MSN AdCenter, Technology Brands, Yahoo Overture

In my last post, more than six months ago … I had outlined a plan for Yahoo to slowly recover from its missteps.

Well, I didn’t see any of those steps happening. Instead, Terry Semel (the then CEO) was kicked out. As of January 31st 2008, he’s also been kicked out of the board of directors.

In his place came in Jerry Yang, the founder of Yahoo. Yang proclaimed that he would make fundamental changes – start by optimizing the work-force and no major announcements.

Well, at least he stuck to the no major announcements part …

In the six months since Yang took over, Yahoo!’s search market share is gone down further, it’s revenues have been barely keeping even and it just announced it would lay off 1000 people.

Well, apparently that’ll do the trick. Because 2 days after the job-cut announcement, Microsoft has made an unsolicited bid to buy Yahoo … for 44.6 billion! That’s a 31% premium over the current market price. Since that announcement less than an hour ago, Yahoo’s share prices have jumped up too.

Now, 44.6 billion might seem like a huge number … but it’s really not that big. Consider Google, which is three times its size. Even facebook, a new kid on the block has a unofficial market cap of almost 15 billion.

Anyway, as a marketer … these business details are not my concern. So, I’ll make my predictions about what’s gonna happen in the marketing world if this merger goes through …

  • First off, the merger is not going to be painless. Anti-trust organizations around the world are going to complain because Yahoo & MSN both have tremendous market shares outside the US. So wait for a few months of haggling.
  • When the merger happens, there will be major internal problems in the new Yahoo. Back in the day, Yahoo was one of the most innovative companies around. And Microsoft was the “grown-up kid”, the company that did things the slow, old fashioned way. Then Google came along and they did things at breakneck speed. So, now Yahoo’s stuck between Google & Microsoft in innovative company culture … and joining up with Microsoft will only make it slower.
  • Obviously, MSN AdCenter and Yahoo Search Marketing will eventually merge. Expect that merger to take 2 years. Add another six months for the aQuantitative system to merge. And when all of that happens, the system will still be inferior to Google AdWords. MS-Yahoo is not going to catch up in the search game in the next few years, but they will continue to struggle anyway.
  • One area they will succeed will be business advertising. They will start bidding higher prices and acquire exclusivity to websites important for business customers (they’ll probably look at another troubled company – Cnet networks next). What that will do is it will create two different market segments in Online Marketing – big companies will rush to MS-Yahoo, smaller players will mainly work with Google. And MS-Yahoo’s growth will not come from text ads, they will have to give that up.
  • Another area they will succeed is business applications. Despite Gmail’s hype, Yahoo mail and Hotmail have 30-50 times the number of subscribers. Despite Google Docs’ buzz, MS Office (and it’s online edition) will have way more revenues. If Microsoft ports its successful desktop applications into a hosted, subscription model and spread that cost over 3-4 years, there will be many more takers than Google Docs.
  • And finally – my biggest prediction. MS-Yahoo will eventually gain credibility and buzz again. Not in online marketing, but in mobile marketing. They will be considerably ahead of Google in coming up and selling Mobile apps and getting licensing/subscription/advertising fees for those. And that’s where the future lies for this merger – a brand new area. Search advertising is a lost cause for the next 5 years.

Well, those were my thoughts … what do you think about this merger? Comment back!

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