The internet as we know it is about to change. Forever.
Technology giant, Microsoft, on Thursday declared its intention to acquire Yahoo to the tune of $US44.6 billion.
It's the ads stupid...
The offer – about ten times Yahoo’s gross profits and 67 times its net earnings in 2007 – hoisted the slumping stocks of the Sunny Vale based company by a remarkable 48% just on rumours of the merger. Yahoo shareholders, eager to escape their misery of almost seven years of sub-par performance, welcome Microsoft‘s proposal of a 62% premium over Yahoo’s lagging stocks, as a generous bail out.
In a letter to Yahoo’s board of directors outlining the pragmatism of the unsolicited bid aka hostile takeover, Microsoft’s CEO, Steve Ballmer, assumed the tone of an impatient father scolding a recalcitrant son:
“Microsoft’s consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective shareholders…we discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected…a year has gone by, and the competitive situation has not improved…we are prepared to deliver a draft merger agreement to you and begin discussions immediately.”
Ballmer sank the knife even deeper when he unequivocally informed the troubled internet icon of his decision to publicize the contents of the letter the next day. And whether or not the due diligence it affords Yahoo bears the desired outcome, Microsoft will pursue the deal nolens volens:
“Depending on the nature of your response, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo’s shareholders are provided with the opportunity to realize the value inherent in our proposal.”
Ouch!
Many Microsoft critics fear Yahoo’s incorporation of open source software to engine some of its sub-brands will be abandoned once the acquisition is sealed. Others are concerned the merger will be another AOL Time Warner fiasco as Microsoft, overloaded with a few too many extensions of the Windows brand, does not seem to understand how to maximize their potentials, let alone figure out what Yahoo add-ons to keep and what to trade-in for counterparts under the MSN banner.
I am not that worried about not having a Flickr or Delicious account, nor am I perturbed by the thought of inputting a domain name if my Yahoo e-mail accounts are transferred over to hotmail. What interests me is the front page. Will Microsoft employ the strength of the Yahoo brand to front its new deal or will it keep the MSN header but merge both competencies under a new name? Microhoo? YSoft? Mahoo? Yasoft? None rolls of the tongue in a way that will boost an improvement in market share. If this is the case, Yahoo, like AltaVista, Excite, and Lycos will soon be no more than an annotation in the history of the World Wide Web.
What seems to make sense is an amalgamation of the digital advertising platforms; clearly this is about the green backs. Or is it more about buying out the competition, pull the plug, shut them up, argument done?
Whatever this merger is really about, is right there in Ballmer’s letter.
Economies of scale, leveraging research and development technologies, operational efficiency, and diversifying the user experience are all salient factors that Microsoft uses to underscore the proposed marriage. Who are they fooling? Everyone knows the Google factor cannot be ignored. A combined Microsoft – Yahoo entity bolsters Microsoft’s ability to ebb the growing dominance of Google, particularly its unrivaled web search precision and advanced commercial presence.
Yahoo is already a far cry from Windows Live search, but Google’s search engine capabilities consistently surpass Yahoo’s popularity and make Windows Live Search a joke. Consequently, to Microsoft’s chagrin, Google has gobbled up much of Yahoo’s market share since its listing in 2004 and saw its stocks increased five-fold over the past four years, with no sign of losing the reigns anytime soon. Ballmer continues: “Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition.”
After fingering Google as the domineering, big bad wolf, Microsoft walked straight into the snare of critics who could not wait to remind the company, neither micro nor soft, of its own hegemony and attempts to breach anti-trust principles. Calls are already being made to the Federal Trade Commission to compel Microsoft to divest some of the spoils of the merger if the deal is approved by the government watchdog. And even more observers were fast on the pull to remind Ballmer of his corporation’s attempt to bullyrag Google under the same antitrust clauses now under the microscope. If I remember the tantrum that Microsoft threw as a result of Google’s interest in DoubleClick.com, I am sure Google remembers it too.
While many opposed to Microsoft’s growing empire continue to chastise the software giant on anti-trust grounds, business strategists and stakeholders agree Yahoo had this coming. At the pinnacle of its 2000 technology revolution underpinned by management strategy, entrepreneurship, and management of technology, the Silicon Valley company was faced with a slew of drivers ripe with the potential to maximize its space and market power. At the time, Yahoo stocks traded at a whopping $US125, but even with the luxury of choosing the destiny of its market forces, the technology bubble failed to capitalize on its position.
eBay was up for grabs, Yahoo did not grab it. You Tube was up for grabs, Yahoo did not even bid. Facebook came up for grabs, Yahoo stood by while Microsoft invested intimately in the potential of the social networking engine. Additionally, Yahoo often introduced new programmes that became late non-starters as they lacked creative thought and a simple marketing ploy called buzz. I only recently discovered Zimbra. I have two Yahoo accounts. Why this addition was not plastered over my inbox is beyond me.
I have not met anyone who does not agree the Yahoo brand, since its universal emergence in 1994, carved a powerful mark on the web. However, the power of the brand on its own does not create a rampart against competition around the corporation itself. Especially with the draconian struggle for survival in the internet market, the brand has to be supported by an exemplary management infrastructure insightful enough to sniff and spot any phenomenon that will anchor its hold on commercial leadership.
Yahoo’s top management turnover and employee layoffs last year, for example, were explosions of a lurking boil the corporation failed to lance when the ball was in its court. Former Yahoo chairman, Terry Semel, stepped down under the pressure of no-confidence ballots cast by the board. Semel is 64 and I take it he should know that one is only as good as his last act.
Since Microsoft’s categorical announcement, Yahoo has since been mulling over the options, “evaluating all of the Company’s strategic alternatives including maintaining Yahoo! as an independent company.” This seems to be a text-book case of denial. As the company has failed to trade above $US30 for the past two years and is under $US20 since the start of this year, I am not certain what “strategic alternatives” will be able to re-position Yahoo as a stand-alone, successful enterprise.
A wise man says “there are no life–long jobs in the knowledge economy, if you’re good, you get to eat lunch.” For now, only Google and Microsoft are at the table.
Yahoo, it was a good run.
Google, the king is obviously in peril, it’s your move. I say buy Skype and call it even.
Raquel is a PR/communications consultant and writer in Toronto, [email protected]
