Microsoft and Yahoo!

Feb 4, 2008 – 11:05 by Ryan

In what will undoubtedly be the largest tech deal of 2008, Microsoft has announced that they would like to get closer to Yahoo!, a lot closer. Microsoft is in acquisition talks with Yahoo! for the mind-blowing sum of $ 44.6 billion.

Forced Hand

Yahoo! has been under intense investor pressure for the last couple of years. The stock skyrocketed after the acquisition talks with Microsoft were announced but, prior to that, it had been two years of gradual decline while their main competitor’s stock was climbing.

In an attempt to regain investor confidence, Yahoo! finally parted ways with Terry Semel and brought Jerry Yang out of his semi-retired state to lead the company. It is our belief that it was Semel’s excursion into content that lead to the decline of Yahoo! While Semel was spending his time trying to do content deals he watched Google ramp up and take over. When Semel first joined Yahoo! he agreed to acquire Google for $1 billion only to have the offer later rejected by Google’s founders.

Culture Issues

Microsoft and Yahoo! probably have fairly similar cultures. Both are going to have the lifers around and thick layers of bureaucracy. Both Microsoft and Yahoo! are probably overloaded by process to ensure nothing moves too quickly.

Technical Systems

There can be only one! For this deal to make sense they will need to replace redundant systems. We believe Yahoo! will win in mail and Microsoft will undoubtedly win in search. If anyone is looking for a few thousands machines with Hadoop installed, there is probably a team at Yahoo! who can help :-) We have no doubt that the majority of ad serving will be migrated to the aQuantive systems.

Vendors

If Microsoft acquires Yahoo! then Akamai is going to be in an interesting position. We’re guessing that Yahoo! is by far Akamai’s largest customer so Microsoft is going to be in a very strong position to negotiate with Akamai if they decide to move forward with the acquisition of Limelight.

Impact on Microsoft

It will take Microsoft years to fully absorb and integrate Yahoo! While Microsoft is busy with this massive deal, Google will only continue to move forward.

Blocked

Google is assembling a roadblock to try and block the deal on the claims of an anti-trust position. If they’re successful, Yahoo! will be left dazed, confused and with a plummeting stock. If the deal is delayed then Microsoft will more than likely sit on their hands until it goes through. Google is in a slightly weaker position because it sounds like they’re reversing the position they just defended in the DoubleClick deal. Microsoft is likely to use the loss of the DoubleClick deal as a win here. Now that’s what we call reusable code :-)

Overall Sentiment

Outside of the sheer size, there is nothing inspiring about this deal. It boils down to a technology giant moving in and devouring a former Internet luminary.

Good luck you Yahooligans!

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