MSFT-YHOO: Striking while the iron is hot

By Kip Kniskern | In Opinion | Posted February 1, 2008 14 comments

y3Today’s announcement by Microsoft that it is offering $31/share to purchase Yahoo! outright sees Microsoft doing the right thing at the right time.  Why?  For a number of reasons, not the least of which being that Microsoft has been planning this for quite some time.  The first indication of that, of course, is that Steve Ballmer didn’t wake up this morning and decide to spend $44 billion dollars.  This is an acquisition that will have to be handled very carefully, across a number of fronts, and one that has been in planning for a long time.  Some early indications of the direction Microsoft was heading came last fall when Microsoft announced it planned to own 40% of search share.  In looking at our chart of the last year’s search performance, with all of the major players maintaining their share but only growing slowly if at all, it was clear that a big play was in the works.

Microsoft’s acquisition at first glance is an effort to shore up search, and indeed that may be the main reason.  However there are other benefits to a Microsoft acquisition of Yahoo:

  • it immediately establishes Microsoft as a major player, or increases their influence,  across a number of internet properties, not only search
    • Maps, where Microsoft has great technology but not the reach it wants
    • Photo sharing.  Flickr is a great acquisition for Microsoft
    • Messaging.  Besides greatly expanding the reach of instant messaging, MS gets the new Yahoo Messenger technology, based on WPF.
    • Personal homepage: has been languishing of late, and the Yahoo homepage is probably the next best thing about Yahoo after search
    • QnA/Answers.  Yahoo Answers is the leader in the space, and Windows Live QnA hasn’t taken off
  • it takes a swing at Google, the day after an underperforming earnings report and before the DoubleClick acquisition goes through
  • it preserves Yahoo’s structural assets before the company’s problems start tearing the assets apart
  • it sets up Microsoft’s strategy going forward, at a time where it makes sense to make a course correction

The Justice Department has already expressed interest in looking at this acquisition, and the problems of amalgamating the two companies are best taken in a slow and careful way, so you won’t be seeing the full effects of this acquisition for 2-3 years, but Microsoft has been planning this move for a long time, the timing is right, and the future just got a lot better for Microsoft, for Windows Live, and for users of both Microsoft and Yahoo.

We’re going to be talking a lot about Yahoo! in the next few months and beyond.  For now, here’s some links to some more on the story:

Microsoft: Press Release

Yahoo!: Press Release

Danny Sullivan, Search Engine Land: Microsoft Makes $45 Billion bid to buy Yahoo!

Todd Bishop, Seattle PI: Microsoft’s Big Yahoo! Bid: Behind the scenes details

Long Zheng, istartedsomething: Microsoft + Yahoo = Big Mess?

Posted February 1st, 2008 at 3:02 am
Category: Opinion
  • Mephiles

    I think it’s a great idea. It will really benefit, but can we relly be sure if it will be merged with Windows Live?

  • pjzedalis

    They won’t integrate it with Windows Live, they’d be afraid to scare the userbase who have used the same yahoo id since the dawn of the Internet.

    However, they will merge the ad networks, disband Yahoo Music in favor of the Zune, possibly kill the YPN or bring it out of beta. MSN will become more Yahoo’ish, and some of the more trendy Yahoo properties will become more Windows Live’ish.

    Also the Yahoo briefcase will become Office Workspaces. Not sure how AT&T fits into this, but I suspect that partnership won’t last too much longer as Google and Apple will approach AT&T about giving gmail to all iphone users and dsl users, etc.

    Yahoo messenger will get more bloated. MSN Messenger will become the default choice. Yahoo messenger for vista will get killed off.

    Somebodys search team will get the axe and hired by

  • pjzedalis

    oh and you heard it here first, but iphone sms messages will soon be archived in gmail automatically.

  • JohnCz

    pjzedalis..I think you are wrong on the point of how they would handle IDs. Yahoo IDs will be turned into Live IDs. I’m a Office Live customer and have a Live ID based on my own domain. So I don’t that that will be at all controversial.

    The one asset that hasn’t been mentioned here is Zimbra. I think that could become a Live service.

    Yahoo will probably provide much of the syndicated content for MSN.

    Yahoo’s small business offering are likely to be overtaken by Office Live services.

    VOIP service that Yahoo has probably will make its way into many MS products.

    The possibilities and risk are huge. But in the end, I think its going to pay off for both.

  • Chris

    This has disaster written all over it for some of these products. The question is which ones. And how long will they keep the Yahoo brand for? Interesting times.

  • pjzedalis

    I use my domain for live id too..

    However I think you are wrong because Yahoo has been beta testing a open id service.

    Microsoft will not let Yahoo continue using openid in a liveid world. They are not likely to kill the openid project either given so many probably use it at this point.

  • JohnCz

    pjzedalis, I agree they will port all services to use Live ID and convert Yahoo user IDs to Live ID platform.

  • pjzedalis

    eh, what Im saying is they cant because yahoo id’s are being used as openid’s… and I don’t see them making Live ID’s OpenID compatible.

  • quikboy

    I think if MS really did buy Y!, the transition will be very slow. I’m thinking that Y! brand itself, will go away, but the sites and services might somehow be mixed with Windows Live/MSN into a much better way.

    I’m thinking that the best site offered from each company by category, will make it to the finish. Or, those guys can try to take what they think are the best features and put them together in one great site.

    And other sites will be enhanced some more, and then launched.

    It would be great if there were such an acquisition. MS and Y! just have to take it slowly, without causing their user base to get angry for it to work well.

  • Chris

    pjzedalis interesting angle on the Live ID front. maybe they would go OpenID though, after all MS seems to be joining a number of initiatives right now.

    quikboy, totally agree on the transition speed. Though for search + advertising I think we’d see that over a period of months, rather than the remainder of the services which would be running into the years.

    Of course this is all assuming the deal goes ahead..

  • JohnCz

    I don’t see the big deal…migrate to Live ID. The average consumer doesn’t care what authentication system is used as long as their UserID and password don’t change on them. But we’ll see how all this works out.

  • rb1385

    I think this is a terrible deal. Too much money and two different cultures that will never merge together. Another AOL/Time Warner or worse.

    Microsoft needs to spend their money on improving their services and hiring young exciting people to bring fresh ideas to a company that is becoming too slow to change.

  • CalumJR

    I disagree, rb1385, because it would take AGES for MS to catch up with Yahoo on the search share. Also, buying Yahoo would give MS a much higher userbase, specifially for thier Instant Messaging service.

  • rb1385

    I just can’t see paying 44 billion unless they were going to switch Windows Live Messenger for Yahoo messenger which works much better. I think they are spending their money in the wrong place but we will see how it shakes out in the end. I hope I am wrong.