Microsoft's bid for Yahoo: Google could play spoiler and bid too

Microsoft's bid for Yahoo: Google could play spoiler and bid too

Summary: Microsoft bids $44.6 billion for Yahoo in a deal that on the surface looks like a no-brainer.

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Microsoft bids $44.6 billion for Yahoo in a deal that on the surface looks like a no-brainer. Unless Google bids too.

The logic behind a Google bid for Yahoo makes a lot of sense. In fact, Google buying Yahoo makes more sense to me than Microsoft buying Yahoo (conference call notes and Techmeme) For starters, Google would make life difficult for Steve Ballmer & Co. And as we all know Google lives to annoy Microsoft.

Meanwhile, despite a sell-off of late Google has the stock currency and the cash to compete with Microsoft. Here's an estimate that adds some heft to this Google as spoiler idea: Citigroup analyst Mark Mahaney said Yahoo has few options to boost shareholder value right now. Should Yahoo want to remain independent it could outsource search to Google in a move that would boost earnings by 25 percent.

The next logical question: Why wouldn't Google just buy Yahoo? Is that speculative? You bet. Is it crazy speculation? Not at all.

As I go through the list of potential synergies with Microsoft and Yahoo the overlap is stunning in some areas. Take email--there's Outlook, Hotmail, Zimbra and Yahoo Mail. Take ad systems--there's Adcenter and Panama. Take ad exchanges/networks--there's Right Media, Blue Lithium and aQuantive and probably a few more I'm forgetting. You get the idea.

Now let's tee up Google. Google buys Yahoo and substitutes Yahoo search for Google's. Yahoo's algorithm is booted for Google's. Monetization rises. Suddenly, Google has destination properties beyond YouTube. Google gets content. Google gets newspaper partnerships. Google gets more users. Google dominates display advertising with DoubleClick and Yahoo in the fold.

The overlap with Google? Not nearly as much as the Yahoo and Microsoft properties have. All Google would have to do is swap search and the deal would be accretive.

Analysts are already handicapping that Yahoo's price tag will go up a bit--just based on Yahoo's stakes in Yahoo Japan and Alibaba, two properties Google would love to have too. If Google bids Yahoo's value would easily eclipse that $31 a share opening volley.

Topics: Microsoft, Google, Social Enterprise

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33 comments
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  • Antitrust regulators would never allow it

    Europe is still mulling over Google's DoubleClick acquisition -- what do you think they'd do with a merger that would give one vendor more than 75% of all Internet searches and pay-per-click advertising?

    Interesting aside: the overlap in Google and Yahoo's product set generally favors Yahoo:

    -- Email (Gmail vs. Yahoo Mail, call it even for tech but Yahoo wins on user base by a mile)

    -- Instant Messaging: Yahoo wins

    -- Photo sharing: Yahoo wins

    -- Finance and News portals: Yahoo wins

    -- Autos, Shopping ports: Yahoo wins (by default, practically)

    the list goes on and on.
    Stephen Howard-Sarin
    • Very good points, this would be a HUGE distraction for Google, and they

      do not want to go through any more very public thrashings about privacy, etc. Google will ONLY pretend to be interested in bidding to possibly drive up prices and cause problems for MS. But, they might be so eager for the deal to go through, that they might just step aside and let it go through. It may be very hard for Google executive tos keep from smirking when asked about the merger.
      DonnieBoy
      • Come on DonnieBoy,

        At the risk of sounding insulting, you really can not be so clueless here. Do you [i]really[/i] beleive that the upper management at Google are "smirking" at this, or are they a bit worried as the ramifications of this may be beyond what they had planned for the future.

        Do you really believe that this was not the "talk at Google" or are they allready plotting their phone calls and evaluating their options as it is easier to pick off smaller competitors, but now immensely harder to fight a larger, well wntrenced competitor.

        If you answered yes to the questions above, you are clueless as I am sure Google is [i]not[/i] very happy about this news.
        GuidingLight
        • They will try to keep a straight face in public. But, behind the scenes,

          they will just stick to their knitting and accelerate the pace of data center construction, and add features to applications. They will NOT let the Yahoo acquisition distract them in any way. Well, they WILL let recruiters go after Yahoo employees.

          Of course they will not stand still on data center designs and data center software. Google is focused like a laser beam on cutting energy costs, and running the cheapest but most powerful data centers on the planet. Google will increase their lead.
          DonnieBoy
          • LOL!

            If everyone wants to work for google, why such a higher then avarage turnover rate there?

            Face it, I bet we will see alot of google employees jumping ship to Yahoo: open source AND Windows, the best of both worlds!
            GuidingLight
          • Mobility is the Silicon Valley way. It is extremely important to mix ideas

            and bring in new blood. So, experienced engineers come and go, creating a VERY innovative environment, but, the total employees at Google are still growing by thousands per year.
            DonnieBoy
  • I don't know, Google has so much to gain from MS buying Yahoo that I can

    hardly see any value in taking a chance on derailing it. I suppose they could pretend they are getting and and go through the motions to force MS to pay more for Yahoo.

    But, there are so many negatives of an MS/Yahoo merger that Google should let it go through. Google can just stick to their knitting and continue to build data centers and leave them both behind. Meanwhile, there will be a huge culture clash and the BSD/Linux engineers will be leaving in droves. There will be a huge distraction trying to convert Yahoo servers to Windows, which will actually be a downgrade. This will slow the building of data centers and platform improvements, again letting Google build a bigger lead.

    And, let us not forget that the antitrust implications of this. Google / Yahoo combined search share is over 80%, headed for 85%. Google would NOT want to expose itself all of the distractions, and another very public rehashing of the privacy issues.

    No, Google will be VERY happy do double down on platform improvements and building more data centers, and watch MS/Yahoo struggle.
    DonnieBoy
    • Google's twin cash cows are at stake, they are worried

      Search and AdSense are google's twin cash cows, nothing comes from anything else they do.

      With Microsoft purchasing Yahoo, Yahoo suddenlly becomes a much larger and scarier playet to google, so yes, they see their twin cash cows in jeopardy.

      I think it will be enjoyable to watch google squirm as their engineers will be leaving in drones looking for employmnet and a chance to make a rael difference at the new Yahoo
      GuidingLight
      • Yahoo and Microsoft are both losing market share in search to Google.

        Combining them will only accelerate that as they take time out to figure out how to merge two completely different platforms.
        DonnieBoy
        • Microsoft allready knows how to merge the platforms

          or haven't you been following the news. Open Source is open for ALL to see, Windows is closed to eveyone but Microsoft.

          You don;t think they havent allredy mergd the two sucessfully?
          GuidingLight
          • Switching all of the BSD/Linux servers to Windows server will be slow,

            painful, and publicly embarrassing. The culture clash will also be a big problem. Google will just stick to their knitting and build an even bigger lead while MS/Yahoo spin their wheels and try to figure out what they are doing.
            DonnieBoy
          • yes, clash of cultures will kill the benefit

            but I don't think Microsoft will convert Yahoo's platform to Windows. Why bother. Yahoo's platform works, technologically at least. Hey, I'd like to see Microsoft port SQL Server and Biztalk Server to Linux.
            killerbunny
  • RE: Microsoft's bid for Yahoo: Google could play spoiler and bid too

    Google is probably too powerful a content provider already to be permitted to acquire a direct competitor.

    While Yahoo! has overlap with MS, Microsoft has never really 'gotten it right' and all Yahoo! really lacks is the financial resources to take on Google. MS has those resources, if it lets Yahoo! remain semi-autonomous.
    M Wagner
  • Google might wait and get them both

    Google should wait, and buy Microhoo around 2010, which will by
    that time most likely be an unholy, sprawling mess, because two
    behemoths who need to be agile don't get agile by colliding
    together. Then they can choose the good bits that fit their
    models, and dispose of the rest profitably.

    Google will sensibly be busy with mobile search & tools, and non-
    English-language content until then anyway.
    David Petherick
  • RE: Microsoft's bid for Yahoo: Google could play spoiler and bid too

    @Larry - can't happen:

    1. Where does GOOG find the money without hog tying itself for some time to come. MSFT has a much deeper war chest
    2. Regulators won't allow it to happen
    dahowlett@...
    • Indeed

      And even if Google could afford them and could get past anti-trust regulation, I wouldn't want it to happen. I like both companies, but I also like the competition. And Google's done well to-date by focusing on its core strengths. For people who actually look at the big picture objectively, they'll notice that Google hasn't exactly set the world on fire with their entries into other markets as they've grown over the last few years. Sure, they get loads of publicity and have learned how to milk the beta/new product media coverage better than anybody (and sometimes really do have some great offerings.) But they haven't done a very good job of monetizing any of their offerings outside of search and AdSense. Those two cash cows still drive the entire business (fortunately for them, they're very very fat cash cows with dominant marketshare.)

      What's lost in the hype right now is that this is only an offer. In the grand scheme of things this is another vote of confidence for the future of online advertising - in which Yahoo is one of the largest and most successful players. Microsoft obviously wants a greater presence here, but there's nothing to prevent other investors from coming in and buying the company (giving Yahoo a shot of cash and restructuring without having to go through all the anti-trust concerns.)

      Either way, it's increasingly obvious Yahoo isn't going to survive the year as a wholly separate company. It's a shame. I've always liked Yahoo and was hoping they could ride it out.
      RustyShackleford
    • There are just way too many hurdles for Google to buy Yahoo.

      The very public rehashing of privacy issues is enough to kill this out of hand. But, it would be very unlikely to be approved in Europe.

      Google will sit this out and watch MS hose them selves. Google will just quietly execute on better data center designs, improving data center software, rolling out more features (including online support) for existing applications, and of course more applications. The confusion of trying to switch Yahoo over to Windows, SQL Server, etc, will just let Google widen their lead.
      DonnieBoy
      • What you are afraid to say

        You keep saying, and saying, and saying that Microsoft would switch all the servers, but never give a reason as to whay. Why would they?

        What you are afraid to say, or evn think is that they are in it for the money, and to leave Yahoo as it is with their own servers and software would be immensely less expensive, plus the fact that all those employees you claim will leave due to the switch as they love working on Linux servers would remain.

        I think you are afraid that that many Google employees might view this as a chance to work for Yahoo on their Linux servers helping forge a new path created by a merger like this, beyond just sitting at google maintaining their software
        GuidingLight
        • Microsoft legitimize Lnux. That is NOT an option. If MS buys Yahoo, they

          WILL switch the Yahoo servers to Windows, sooner or later. Yes, it might be slow, painful, and publicly embarrassing, but it will happen, just as it happened with HotMail.

          And, if Microsoft buys Yahoo, there will be very few Google employees moving over.
          DonnieBoy
          • HotMail runs on Solaris.

            Sorry to disappoint you.
            B.O.F.H.