Why Microsoft should not buy Yahoo!
Friday, February 1, 2008
Microsoft made an unsolicited $44.6 billion bid to buy Yahoo! today. This was not unexpected, as there have been discussions, rumors and speculation of a Microsoft buyout of Yahoo! since 2005, but it is very surprising that Microsoft would actually pursue such a course of action.
At $44.6 billion, this would be by far the most expensive acquisition in Microsoft's history and is a 62% premium over the current stock price. Is a sinking company like Yahoo! worth this price? The biggest problem with this acquisition is that neither company has much to offer the other. Does Microsoft really need two AJAX e-mail services that emulate a desktop app interface? Does Microsoft really need two search engines? Or two map services? Or two instant messaging systems (both of which have already interoperable with each other for some time now)? Technologically, Yahoo! has very little to offer Microsoft--much of what Yahoo! has, Microsoft has as well. There would be very little, if anything, to be gained from merging Microsoft and Yahoo! technologies and software, and such a move would also be extremely costly and complicated. What about talent? Microsoft has no lack of good talent, and if stories like this one about the Vista development process is any indication, Microsoft's problem isn't a lack of talent, but an organization that impedes the effectiveness of talent, in which case, how would a larger overall company and a Yahoo! demoted from independence to corporate division help with this problem? This leaves us with Yahoo!'s user base of around 130 million users per month (as of a year ago, in December 2006). Is each Yahoo! user really worth over $340? Especially since Yahoo is a company in stagnation or even decline? How would Microsoft grow Yahoo!'s user base? And vice-versa?
Ultimately, this is a terrible idea. Steve Ballmer and Microsoft's board are yahoos for proposing what could very well turn into the next AOL-Netscape. On the other hand, at a 62% premium for a fading company, Yahoo!'s shareholders would be stupid to not accept such a lucrative offer. So unless Microsoft gains some sense and pulls out of this one, this disaster is a fait accompli.
This entry was edited on 2008/02/01 at 10:42:09 GMT -0500.