Web Development

Yahoo struggles may be good news for Microsoft

In what appears to be a surprise move, Microsoft has laid a purchase offer on the Yahoo table.

In what appears to be a surprise move, Microsoft has laid a purchase offer on the Yahoo table.

On Jan. 31, Yahoo announced that Terry Semel would step down from the Chairman of the Board role that he transitioned to seven and a half months after resigning as CEO. The day before, Yahoo announced that it expects to cut 1,000 jobs and published information about its growth outlook for 2008, warning shareholders that a turn around wasn’t expected until 2009.

From the NY Times:

Jerry Yang, the chief executive, warned investors of “head winds” this year. Yahoo’s projections for revenue growth and profitability in 2008 were either at the low end of analysts’ expectations or below them.

Yahoo executives said those projections were largely independent of the slowdown in the United States economy, noting that it was too early to predict whether weakness in the financial, travel and housing sectors would hurt online advertising.

“There is not a lot of positive about the outlook,” said John Aiken, an analyst with Majestic Research, an investment analysis firm in New York.

"Not a lot of positive" may be an understatement. In a conference call on Jan. 29, held after market close, it appeared as if the number two ranked portal didn’t have a solid vision for the company's direction. Throughout the call, there were references about what the company wanted to do but no substance about how it would actually do it.

From the NY Times:

The call sounded like a committee of actuaries talking about the results of a mid-tier life insurance company. Sure, Yahoo has problems, but it is still the No. 2 in one of the fastest-moving markets ever. It has half a billion users a month. There’s got to be something exciting to talk about.

Instead, Mr. Yang and Ms. Decker’s strategy is essentially “vision goes here.” They want to be the “starting point” for users on the Web. They want to be the “must buy” for advertisers. And Mr. Yang said he would assume an “aggressive investment posture.”

The only thing missing from that is the substance. Why would users start at Yahoo? How are advertisers going to find Yahoo superior? And what will the company invest in?

On Jan. 31, Microsoft laid an offer on the table to purchase Yahoo for $44 billion in cash and shares. This is 62% above Yahoo’s closing share price on Thursday.

From BBC America:

Yahoo cut its revenue forecasts earlier this week and said it would have to spend an additional $300m this year trying to revive the company.

It has been struggling in recent years to compete with Google, which has also been a competitor to Microsoft.

"We have great respect for Yahoo, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market," Microsoft chief executive Steve Ballmer said.

You can read the full text of the Microsoft press release and the letter to the Yahoo board.

So, what is the final impact here? It is obviously early days yet, but the acquisition of Yahoo would certainly firmly place Microsoft as a player in the online landscape that Google has dominated for some time. For Microsoft, this would be the expected conclusion to its earlier investigation in 2006 and 2007 to purchase the online portal. The move would position Microsoft to challenge Google’s market share. As a consumer of Internet portals, does it matter to you that Microsoft is positioning to become a bigger player?

Update- DOJ and potential hostility

39 comments
zoldello
zoldello

I do not care. None of us will financially benefit from the merger nor gain in other significant ways. I will just sit back, let them do their thing and use the best products be it from google, Microsoft, Yahoo or whoever. The only thing between these companies in question I care about is .NET, for I do not want to learn an alternative like JAVA. Besides that, I do not care.

JCitizen
JCitizen

money off pure speculation. T. Boone Pickens used to do that all the time in the '80s. By up stock in a good but near-do-well company when it is low. Announce that a purchase is imminent - sell the stock as it goes up during the consequent greedy scramble - then sell his stock - collect the profits - then, all the sudden "negotiations break down" - Aww! Too bad! Oh Well at least 'ol T. made more money(substitute Microsoft)!

Tig2
Tig2

After I posted the original article, I was able to listen in on a conference call with Microsoft and gather additional information from other sources. The original article has been edited to include that new information on page 2. Definitely worth a read! Is Mahoo in our future?

sleepin'dawg
sleepin'dawg

Microsnot can have my shares on that percentage of profit but it better be done fast before Yahoo share prices ramp up. I'm waiting to hear when the deadline of the offer is due. Also have to consider the share price of Microsnot heading for the dumper because of this. Anyway you look at it, there's money to be made on this and some will profit quite nicely if they play their cards right and don't get greedy or let sentiment get in the way. Damn but I love options. [b]Dawg[/b] ]:)

Tig2
Tig2

I thought about you as I was writing all that. I found the disparity of values interesting. Equally interesting is the timing. So far, Yahoo hasn't identified a banking advisor and the whisper is that they won't move even a bit until next week. But it had better be early next week as the Street has already begun to correct on the jump this morning. Good times, good times!

Tig2
Tig2

I have it easy. I think that there is a lot of money to be made on this. Anyone who was part of the correction today has discovered this. I have to admit, today was the most fun I have had following a story. And I will be following this up as warranted. There is a lot of story to tell here. Always nice to know that you are out there and reading. So tell me, how do you think I am doing in the new job?

sleepin'dawg
sleepin'dawg

It takes real skill and gives maximum satisfaction when you're making money in a bear market. I truly love it when they start giving away money for free. It's also extremely satisfying when you're scoring while everyone else is losing, which they wouldn't have been, if they had only listened to you in the first place. B-) If God didn't want us to be rich he wouldn't have created options and margin accounts but never, ever max out your margin beyond your disposable income. [b]Dawg[/b] ]:)

The Scummy One
The Scummy One

This may be good or bad depending on why it is being purchased, and how this will be implemented. Keeping Yahoo seperate to some degrees, may ultimately be the best way to do it. Kind of like HP/Compaq. This allows for having 2 seperate lines with differing goals, competing with each other while making only gains for the main company. This can prove effective in giving choices, and the market will decide which choices are ultimately more wanted. And maybe, the search features will improve at MS...lol But, if they are looking for the other way, just to absorb Yahoo and kill a competitor, then it is likely a bad move.

Tig2
Tig2

And likely they won't until the DOJ and EU have done their thing. And they will also wait until Yahoo either accepts or they decide to go hostile. Regardless, Ballmer's approach today was to value the strengths that both companies bring to the table and to remark on the synergies that they have. It may mean that they adopt tools that Yahoo has done better, it might mean a rebranding that covers all of the potential online revenue streams. It is just hard to tell from here. Stay tuned though. This is gonna be interesting.

The Scummy One
The Scummy One

to see if I need to ditch using Yahoo! Now, I am not saying I will ditch it if MS does buy it, it depends on the aftermath.

tim
tim

Ballmer wrote in his proposal about "a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace." He then lists a few strategies but no vision. What is that vision that would make the the merger anything other than buy and kill a competitor? At a 62% premium to shareholders, it seems obvious that they just want to eliminate a player in their quest to catch-up with Google.

zen71001
zen71001

Well thats the end of Mac support for the Yahoo client. The MSN client is all but useless and way behind the PC client and I am sure its deliberate - it can't be that hard. The company I am working for took their own PC client and converted it to OSX and despite being a much more complex piece of software than a Chat client it only took one developer to do the conversion. But I bet if M$ buys Yahho they won't even spare that much effort on the mac Yahoo client. So I hope Google buys yahoo.

The Scummy One
The Scummy One

If the goal is to enhance and compete stronger with Google, they will likely want to endorse Linux/Unix and MAC support. f Google tried to buy Yahoo, it would likely be rejected due to being too close to a monopoly. But then again, as things have played out in the last few years, they may actually get away with it...

DarkRaito
DarkRaito

if Microsoft managed to bought yahoo, then Google will have to catch up with Microsoft. but is that the real Microsoft's motive of buying Yahoo?

Tig2
Tig2

Does it surprise you that Microsoft is taking such an interest in struggling Yahoo? Or are we just seeing more of what we have always seen from Microsoft- if you can't build it, buy it? And not to say that there is anything wrong with that. Many companies survive on a "buy, don't build" model because of perceived cost savings. But it does seem as if brands that are consumed by Microsoft are fully consumed- the technology along with the name are swallowed. So is Yahoo destined to be just another of Microsoft's acquisitions, re-branded to fit the software giant?

armstrongb
armstrongb

Yahoo has been a mess for years. What is that Yahoo does that no one else can do? How is combining a failing business model (Yahoo) to another failing business model (MSN, which is craptacular) going to "catch" Google? I stopped using Yahoo around 2000. I rarely see email from yahoo accounts and Yahoo groups. In my life, Yahoo ceased to exist and has no purpose. So this will change nothing, I will continue to not use Yahoo just like I don't use MS Live, Windows Live or MS search. That 44+ billion dollars could have been better spent getting SQL 2008 out the door on time for a change or developing apps that run well on Vista boxes. The Yahoo acquisition is another distraction for MS and will be money ill-spent IMHO.

Michael_Knight
Michael_Knight

No body Likes Microsoft, Bill Gates is Satan Incarnate blah blah blah. I bet at least 90 % of techs got their start supporting Microsoft systems. Will they mess up like with lets say Millenium or Vista Sure but Every company puts out products that don't work...Remember the Mc Rib? At least Microsoft is an American Company looking to buy Yahoo as opposed to more over seas companies like Sony or even lets say...the Chinese Government. Besides, no one uses Yahoo anymore, Google took over the search portal business.

Bill Harrison
Bill Harrison

You've gone too far. There is nothing wrong with McRib except that it always seems to come back during squirrel season...

meryllogue
meryllogue

Boy, I AM out of the loop. Hunh? When? Really? Was it tasty? Bummer on the squirrels. Put more nuts out.

JCitizen
JCitizen

So low fat too! =) They should have advertised that one! :^0

Tig2
Tig2

Doesn't that make you ask questions... or want to? I hadn't noticed the correlation between the McRib and squirrel season before. I will have to watch more closely. And of course, the McRib had MUCH better adoption than the McBambi burger. Don't know what that one never sold well...

The Scummy One
The Scummy One

If I dont find it on Yahoo, then I move to Google. maybe its just habit, but I have been using Yahoo for quite a few years, and have no need for change.

Tig2
Tig2

I'm simply recognizing that if this is allowed to go forward, it will be the largest technology merger ever. And it will significantly change the balance of the landscape. I report the News. I provide reports from a variety of resources. I make sure that readers have access to my citations. Regardless of how anyone feels about the players in this, it will have an impact on the Net and how we are able to work. I personally was a MCSE. I have a lot of years using and supporting Microsoft products. But the bottom line is that it doesn't matter how I FEEL, it matters that you are given the information.

mhbowman
mhbowman

I can't say that I like the idea of less competition, or the fact that M$ will ruin Yahoo while attempting to "improve" it. The one thing I can't believe is that they offered so much for it. What would be interesting? If Oracle CEO Larry Ellison, in his obsessive quest to be richer that Gates, decided to put in a bid. I think it would result in the "Billionaire Battle Royale", and THAT would be awesome.

meryllogue
meryllogue

(CAPS are mine.) Now THAT is a well-reasoned position. Sheesh. I won't even go on about what that makes me feel inside, and what I think in me wee brain. 'Cause I know it is just an emotional reaction, and I will feel better later. But I will say that I wonder how you can speculate on a future state and then call that "fact." Not EVERYTHING Microsoft does is bad. It is just irresponsible to put that kind of talk out there. BUT... having been in the limelight before, I do know that the moment you rise above the crowd, you become a target in someone's sights. Ka-POW. (Ouch!) I can list a lot of good that company has done, along with some bad. But 100% either way? No. It is just not possible to be 100% bad AND successful, no matter HOW good your PR might be.

nriddle
nriddle

The only thing shocking about this is the fact that M$ is willing to pay so far above market value. For M$ it is a typical move that is consistent with their business strategy. "Buy, repackage, rake in the $$$." My personal opinion is that M$ made such an attactive offer to keep any potential competitors from starting a bidding war. It was just a matter of time before a web giant started to flounder a before another Tech giant bought it out. At least, you rarely hear about M$ not having "direction." I see this as a potential to improve an already quality website. ...my 2 cents

jrwooton
jrwooton

I really don't want Microsoft even close to buying or owning Yahoo...I love my Yahoo just the way it is and it would not be the same if Microsoft goes and purchase it and they would make too many changes down the road to "make it better" by thier standards....I hope that the govenment steps in and tells them to back off and leave it alone...who knows what is going to really happen...lol...

k_chatterjee
k_chatterjee

Hi , I totally agree with jrwooton, I LIKE MY YAHOO and would'nt like any change to it. May god bless Yahoo. KC

meryllogue
meryllogue

lol. I really don't care one way or the other. Stuff comes and goes.

Tig2
Tig2

See here http://blogs.techrepublic.com.com/tech-news/?p=2042 for a round-up of information from the weekend. Regardless of how anyone feels about this and regardless of what finally happens, this will be good to watch. And I am reasonably certain that everyone will have a preference.

The Scummy One
The Scummy One

that Yahoo is going to try to partner with Google, to keep MS off their back. But then again, there are plenty of other unconfirmed reports flying around as well. Best bet is to wait and see.

allen_armstrong
allen_armstrong

Begin conspiracy theory In my opinion Microsoft is using the old tack ticks again. Remember when Microsoft got in trouble for acquire so many companies and then Microsoft switch to hiring the brains at these varies companies. In my opinion Microsoft is buying yahoo for technologies that it has purchased. Yahoo isn't just search engine remember. I think the main reason why Microsoft is buying yahoo is: http://www.zimbra.com/ End conspiracy theory

twoclones
twoclones

Yahoo Mail is a great service. I hate using Hotmail and believe that if Microsoft gets Yahoo they'll screw it up as surely as AOL wrecked ICQ.

meryllogue
meryllogue

It seems like something has to happen. They are floundering, as measured by some pretty classic KPIs. Who better to buy them than a "deep pocket?" Would you rather they flounder 'til Death do its part? Or that another--smaller--company buys them for a price that is less attractive (remember the shareholders...many of whom are the "little guys" in this world), or that buys them but does not have the capital behind them to make the changes that need to be made to keep them solvent? Not everything Microsoft does is bad. I know this sets me up as a target for a brutal public stoning, but it is just not a mature logic train to say "Microsoft is bad bad bad don't believe anything they do or say pound on them any chance you get" etc. ad nauseum. Thanks for the well-written compilation of the news around this, Tigger. It will be interesting to see how it plays out.

richard.wilson
richard.wilson

More government intervention in commerce and coporations. Maybe they can also set up bread lines for us all...

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