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Microsoft + Yahoo = ?

Ten years ago, the news that Microsoft wanted to buy Yahoo would have been grounds for completely freaking out. Such a combination would have been an outrageous and offensive attempt to monopolize the Web; I don't know that even the "to heck with Janet Reno" Microsoft of 1998 would have dared such a thing.

The Microsoft of 2008, however, just did, offering $44.6 billion for Yahoo.

My first and most cynical reaction was "well, these companies do have a lot in common." That is, they've both stumbled badly over the last few years, as smaller, more nimble competitors have repeatedly beaten them to the market with innovations. Companies are no longer so afraid to take on either of these two.

My second reaction was "oh, really?" How, exactly, does Microsoft think this combination will get a thumbs-up from all the government regulators involved? In its press release, Microsoft says that it "believes this proposed combination would receive all necessary regulatory approvals and expects that the proposed transaction would be completed in the second half of calendar year 2008."

Combining two of the three largest providers of Web search and numerous other online services--when one of these companies also has a diminished but still massive majority of the Web-browser market--might offend the sensibilities of even the current merger-happy administration. But the United States is not the only government that would have to approve the merger--the European Union would as well.

And the EU's regulators have been far harsher towards Microsoft than the folks at the Department of Justice here. They've spent far more time investigating Microsoft's conduct in a variety of areas, have demanded many more changes to its products and conduct, and have socked the company with hundreds of millions of dollars in fines.

I suppose that Redmond and Brussels might come to an agreement on this eventually--but by the second half of this year? And if Microsoft can't get this deal done by then, it will have to face a different set of regulators back in Washington.

My last reaction: "Will Microsoft and Yahoo's competitors cheer this on?" Let's look at some of the bigger mergers between tech firms over the past decade or so: AOL and Time-Warner, MCI and Worldcom, Hewlett-Packard and Compaq, Sprint and Nextel... yeah, those have really panned out. In each case, the merging companies waste an ordinate amount of time and money getting their products, people and systems to coordinate. The resulting turmoil sets them back years, often vaporizing a sizable chunk of shareholder value along the way.

What do you think of this deal?

By Rob Pegoraro  |  February 1, 2008; 10:09 AM ET
Categories:  The Web  
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Leaving aside the regulatory issues (which do seem significant), this seems like a GREAT deal. For Yahoo. 60+% premium over market for a business in free fall? How can they do anything but leap at this offer?

I don't see how it helps Microsoft. The last thing they need is the enormous problem of integrating another huge company, especially getting DOJ/EU approval. And what does Yahoo bring to the table? I'm not sure the answer to Microsoft's problems (lack of innovation, difficulty breaking into the online search market) lies in the incorporation of another big web 1.0 business that just laid off a bunch of its workforce.

So yeah, great for Yahoo stockholders, bad news for everyone else. Well, everyone else but Google.

Posted by: Jake | February 1, 2008 11:51 AM | Report abuse

We really need a viable competitor to Google, or else they will start extracting more and more of the surplus value created by online advertising. Perhaps this will produce a real competitor and will be pro-competition.

Posted by: Tom | February 1, 2008 11:55 AM | Report abuse

Microsofts problem is that it isn't focused on technology, it's focused on money. Innovation is about doing something cool and new. Money is secondary. Even a .com success grew up with that attitude. Of course for survival purpose money can't be completely ignored. in the case of MS that's all they think about and they can't manuever

Posted by: Christian | February 1, 2008 12:14 PM | Report abuse

Yahoo shareholders would be stupid not to take this deal. Here is the reason why.

Posted by: Trumbull | February 1, 2008 12:15 PM | Report abuse

I'm quite an anti-Microsoft partisan, but this doesn't look like an antitrust problem to me, given Google's strength.

It does, however, look like a bad investment in Microsoft's part. Sort of like Time-Warner's AOL purchase.

Posted by: J Epstein | February 1, 2008 12:50 PM | Report abuse

Agree with OTHER posts & this trading was all through last evening, profit taking all over before opening fridays NYSE.

To make $$$$ try AMD right now, it bottomed out last week at $6.80 & is on upswing that will last several years or more, with top end about 8X todays. This is due to AMD having been private time/charges company that went public to hold middle road in evolving telcom world or so it all works, they just give profits away so they remain viable, its in their protocol.

Yahoo is stanford U gone chinese, while microsoft is definately US now moving to Russia with new campus. Its more politics & internal profiteering. World Telcoms Unite!!!


Posted by: thomasxstewart | February 1, 2008 1:01 PM | Report abuse

Microsoft + Yahoo = ?

And the answer is -

Anything good about being on Yahoo will eventually be eliminated.

Posted by: cmecyclist | February 1, 2008 2:03 PM | Report abuse

Does this help Microsoft with Digital Distribution? Can Yahoo serve as a portal for Microsoft to deliver more content to the masses, much like X-Box Live?

Posted by: Cameron | February 1, 2008 2:12 PM | Report abuse

Cmecylist has my thoughts exactly. I'm quite sure that my yahoo and yahoo mail, and who knows what else, will stop working with Firefox, Safari, and any decent webbrowser.

That doesn't mean it's a regulatory problem. What it means is that now's the time to buy google stock, since Yahoo will die even more completely.

Posted by: ah | February 1, 2008 2:30 PM | Report abuse

Certainly no better time than the present for MS to do this deal. If they can complete the transaction before the next (possibly Democratic) administration arrives, they stand a good chance of avoiding problems with DOJ. Remember what happened with the anti-trust suit once W and his people took office?

Posted by: timing | February 1, 2008 2:40 PM | Report abuse

Mr. Pegorado is right to be skeptical. Yes, MSY! will be able to compete with Google on paper, but beyond the typical spreadsheet hype, MSY! will merge the historical liabilities of both companies. Y! has a terrible record in what will be the biggest market in history, China. And MS's years of being truly innovative are long past, witness the current cons-elect and OS products Zune, Vista & HD-DVD Xbox. Has anyone asked how their corporate cultures would mesh post-merger? MSY!, if it even exists, will probably end up more like a GM of the internet.

Posted by: Sekouba Samake | February 1, 2008 2:41 PM | Report abuse

I agree it would be bad news for Yahoo users! Seems Microsoft is bent on domination .... hopefully the Feds will see this play for what it is. Yes, we do need a viable competitor to Google, but why just one?

And the race goes on!

Posted by: stjaustin | February 1, 2008 3:01 PM | Report abuse

This move doesn't really surprise me. I bought a new cpu a weef ago with Vista Home Premium and it came pre-installed with the Yahoo! Toolbar and a whole bunch of other yahoo garbage on it. The only thing I use yahoo for is fantasy sports, and this isn't going to change that one bit (unless it starts costing something)!

Posted by: DudeAbides | February 1, 2008 3:32 PM | Report abuse

You say, "In each case, the merging companies waste an ordinate amount of time and money getting their products, people and systems to coordinate."

You give Bernie Ebbers WAY too much credit.
WorldCom did ZERO in this regard when it bought MCI. It wasn't until after the newly reinvented MCI rose from the ashes of the WorldCom bankruptcy that the work to coordinate systems and people began.

Posted by: Annorax | February 1, 2008 3:45 PM | Report abuse

The worst news of all would be for Zimbra users. I can't imagine that Yahoo!'s recent acquisition of one of the only TRULY viable Exchange alternatives was *NOT* a factor in M$' decision to go overboard on this offer (aside from their usual "if you can't beat 'em, buy 'em" shortsightedness that dumbs-down the whole industry). The timing is interesting.

Zimbra users were anxious when Yahoo! bought them out, even with the contract to keep Yahoo!'s hands off for a year or two. Only a few months later, they're in cardiac arrest with this news!

I just hope ZImbra was smart enough to add terms that give them, OR THEIR PRODUCT, an out for this sorta nonsense!

On a personal note, if I wanted Hotmail, I'd have signed-up. If this goes through, I terminate my Yahoo! accounts and play fantasy sports elsewhere, and no way I'll be reading MSNBCY! for any other topic. The more you look at it, the worse the deal seems. Surely there's a better way for M$ to spend this money to compete with Google than to duplicate all of their efforts just to get some additional ad revenue and search love?! Given this, the Zimbra connection may have been even more of a factor than I thought.

Posted by: ExchangeSux | February 2, 2008 6:07 AM | Report abuse

Microsoft + Yahoo = ?

Very simple answer...
Microsoft + Yahoo = Microsoft

Yahoo has to stand itself for the good of IT industry development

Posted by: Aji | February 4, 2008 3:59 AM | Report abuse

I don't know if many folks remember a few years back when Microsoft got into DSL delivery. They contracted with one of the telecomms, but the DSL modems were labeled MSN and Microsoft managed the montly billing/accounts payable. MSN stayed in that for a little over a year, and then, all the MSN DSL subscribers got a letter that they were terminating the service and would have to switch to another carrier (and that clients could just toss their MSN DSL modem into the trash).

My point being there have been some ventures where Microsoft has not been successful, and in the end the customers suffer.

Rather than expanding its reach into new areas, I wish Microsoft would make a corporate-wide commitment to improving the usability of its current products. Ubiquity does not equal quality.

Yahoo is faltering because customers prefer another provider and another product. Unless Microsoft commits to quality/usability, my guess is customers will continue to prefer another provider.

Posted by: NW DC | February 4, 2008 10:33 AM | Report abuse

First of all, MS is offering way too much money for Yahoo. Second, Yahoo has been moving towards crappy for long time. I'm surprised they still exist. Third, Google continues to build momentum, so at this point, very little could stop it besides a sudden financial disaster in the advertising market. Finally, MS should just concede in the race for being the most used, most respected and most necessary company in web services market.

Posted by: and the point is? | February 4, 2008 12:13 PM | Report abuse

The answer is obvious:

Microsoft + Yahoo = Microhoo.

That's a priceless name.

Posted by: josef | February 4, 2008 6:07 PM | Report abuse

I find both Google and to be very reliable sites. I don't even consider Yahoo or the many ways to acquire its toolbar plug-in.

The only thing that will change for me is aesthetical. Now when I got to I might see a "Powered by Microsoft" or "Microsoft Search Powered by Yahoo." Unless this merger will allow for M$ to benefit from whatever R&D Yahoo is working on, it will just be another search engine in a sea of search engines where the two names I mentioned above are top dog.

Posted by: barcodedmaggot | February 6, 2008 11:53 AM | Report abuse

Oh, and while shows to be so low on the list, it's a prime example of marketing over effectiveness. You put the name out there, you're going to get more attention regardless of whether your product is superior or inferior to your competitor.

Advertising is key.

Why else would Apple sales see such a growth in the last couple years? Okay, it's got greater compatibility now. However, it's their advertising campaign that drives their sales.

Linux advertisements aren't very frequent at all, but imagine if they were. The competition M$ would face once home and business users were exposed to free OS with online support, free office applications, and other open license software might teach the giant something...

Perhaps that reliability beats stuffing your brand in people's faces.

Posted by: barcodedmaggot | February 6, 2008 12:03 PM | Report abuse

Yahoo small business hosting and Yahoo store packages are very difficult, if not impossible to SEO. The yahoo small business websites built with sitebuilder never get ranked in the search engines due to the fact that they can't be optimized properly. Here is a seo company that offers this seo service for free:

Posted by: yahoo seo small business | February 10, 2008 10:54 AM | Report abuse

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