11 February 2008

Microsoft/Yahoo Merger – Biggest Bang for Both

While looking at the hostile bid from Microsoft, you can’t help but look at the potential upside of the takeover, which is to force Yahoo to look at its strategic direction, and Microsoft’s intent. While it is understood that Yahoo and Microsoft in its current form can’t really compete with Google on the same scale (although they both really want to…), Yahoo is missing the boat on what its strategic goal should be…the better alternative to Google, in all its glory. Now, already having search, ads, and portal content, the one thing that Yahoo needs, is to build credibility in the the world of Web 2.0, by getting companies to buy into it, as a social/corporate/educational landscape, where the Internet becomes an essential tool in the working environment, by utilizing “collaboration” applications, similar to Google Documents & Spreadsheets. By becoming part of Microsoft, these online applications would instantly put the Yahoo faithful to the forefront of Web 2.0, and give Microsoft the added punch needed to shore up its businesses, outside of boxed software. Application-rich content is the direction Yahoo needs to go, and it can only compete if it ties up with Microsoft. No doubt the majority of Yahoo shareholders will see the light, and pony up to Microsoft’s offer. Microsoft could go another $5 per share (offer $36/share) to secure the confidence of senior management, and still come out a winner in the deal.

Microsoft will be better off by upping the ante for Yahoo, and take it under its wing, and give them both a leg up in the battle with Google. A year after this acquisition will probably see Gates take over the top spot as richest in the world.