Microsoft is offering to buyout Yahoo for 44 Billion US Dollars, in a bid to more effectively compete against Internet Search dominator Google. There have been many rumors about this , and letter of intent from Microsoft's board to Yahoo's board (of directors) is now officially sent.Mind you, thats about Microsoft's 3 years operating income (05,06,07) and less than one years revenue. This comes at a time when Microsoft's own Online Services Business has been fumbling -netting the division a quatearly loss of 248 Million dollars. Yahoo's own operating income has fumbled with a 26% drop in profit (YOY 07/06), Yahoo's operating income stood at 695 Million Dollars for year ending 2007 which is clearly shadowed by Microsoft's divisional loss of 732 Million Dollars for Fiscal Year ending June 2007.
Microsoft see's the acquisition of Yahoo as a step to expand R&D, improve Operational Efficiencies and run their online business on a scale of economy to help dampen its online investements.
I personally feel that buying out Yahoo is more off buying out a "market share" along with a few good Web Real Estate. I fully believe that the Windows Live Team is capable of achieving great heights left to themselves. The problem seems to centre more around this "Windows" , by trying to make all of Microsoft's products relevant to Windows, Microsoft is losing sight of the market. An example of this would the Office Live Workspace. This product has been intentionally crippled that it does not allow its users to "create" or "edit" documents. Whereas it allows you to View, Download and Share Documents while allowing you to create "Notes". This has been intentionally inflicted upon this otherwise good piece of online software to ensure that the service is used in unison with Microsoft Office and not standalone. With such a mentality how would one expect a successful online service oriented business?
Meanwhile Google happily adds features to its online word processing, spreadsheet and presentation utilities, which can also work offline with the help of a Google plug-in know as Google Gears.
In my opinion, Microsoft must give a free reign to its Live developers to help better compete against Google.It is my belief that Microsoft has the potential to win the uphill battle against Google, Yahoo's acquisition may help in this battle; but a key factor to be considered is the business outlook and strategies formed in Redmond. It is time Microsoft develops an independent online offering , a more unified branding and easy to use online services that are fully functional by themselves and not as a complement to product purchases or software.
With the acquisition of Yahoo!, Microsoft will have a complete Web 2.0 portfolio and will own key internet properties such as Flickr and Delicious. It is best that Microsoft switches to Yahoo for search results while the joint R&D teams are able to develop better search algorithms with their combined patents and knowledge base. A competent Ad-Delivery network that can compete against Google AdSense , DART and FeedBurner needs to be developed.
With the expanded portfolio, Microsoft can develop an effective Advertising strategy along with superior paid services for multimedia content (something Google has failed - Google Video, and Yahoo not very successful). Whereas Microsoft has the expertise to deliver appealing services (XBOX Live) , it only has to apply its experience to a broader offering.
Microsoft's OFFER
- $31 per share
- $31 cash, or
- 0.9509 of Microsoft share
- Shareholder election subject to 50/50 proration
- Targeted to close in 2nd half of CY’08
Meanwhile Google's shares have dropped 9.4% or 53 USD (10:48AM ET) as its earnings missed Wall Streets expectations. Microsoft shares have dropped 6.2% or 2 USD (10:47AM ET), Yahoo shares are up 43% or 8.24 USD (10:50 AM ET).