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 Microsoft to buy Yahoo for 44.6 BILLION DOLLARS

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Registration date : 2008-01-16

Microsoft to buy Yahoo for 44.6 BILLION DOLLARS Empty
PostSubject: Microsoft to buy Yahoo for 44.6 BILLION DOLLARS   Microsoft to buy Yahoo for 44.6 BILLION DOLLARS Icon_minitimeMon Feb 04, 2008 7:48 am

What happened?
Microsoft made a bid to
purchase Yahoo for $44.6 billion. The deal, however, is far from done, but the ball is clearly in play and on Yahoo's side of the court. "The hard question asked of [Yahoo] management will be how Yahoo intends to match the return represented by the Microsoft bid, and produce a 62% increase in Yahoo's stock price," said Allan Krans, an analyst with Technology Business Research. Microsoft said it hopes to close the acquisition in the second half of this year. The deal would become Microsoft's largest acquisition ever, dwarfing the $6 billion it paid last year for Aquantive.

What's this all about?
Microsoft has three simple answers. Search. Advertising. Infrastructure to support delivery of those and online services. Both Microsoft and Yahoo are playing from behind in the search game against Google, whose U.S. Internet search market share increased from 51.7% in the fourth quarter of 2006 to 58.4% during the same quarter in 2007, according to comScore. In that same period, Yahoo declined from 27.6% to 22.9%, and Microsoft's from 10.4% to 9.8%. And with that many eyeballs, Google also can parade out its other services, such as productivity applications, that peck away at Microsoft in other areas.

Haven't we been here before?
Yes, Microsoft CEO Steve Ballmer said Friday that the two companies have been talking for the past 18 months. Yahoo said last year that the timing was not right and it could say the same thing this time although that seems unlikely after CEO Jerry Yang said this week it might be 2009 before Yahoo sees a turnaround from its falling profits. Ballmer personally called Yang Thursday night to discuss the offer.

Both Yahoo and Google [missed analyst estimates by 3 cents] have shown weakness this week through their earning statements. Yahoo's stock is down to November 2003 levels and it says it will lay off 1,000 people in February so there might not be a better time for Microsoft to strike and get shareholders and others with Yahoo financial interests to put pressure on Yahoo's board of directors to agree to Microsoft's overture.

Is there technology overlap here?

Yes, major overlap on the most strategic technology. Microsoft and Yahoo both have their own search platforms and advertising platforms. Merging those two will take some engineering muscle. Microsoft says one ad platform and one search platform will provide operational savings but also allows engineering teams more time to innovate. The company says the result will be more efficiencies and better value for advertisers and content publishers.

What about other technologies?

There are some synergies and some collisions that will have to be smoothed out. This deal is decidedly about the consumer, but also includes hopes that consumer-based services will some day cross over into the corporate world [think instant messaging]. The issue for Microsoft is not to alienate users of Yahoo services by closing services down or stomping on them. Users can easily defect to Google given the fact most of the services they are using are free and require no more infrastructure than a personal computer. "The assets here are the users, Microsoft has to balance that really carefully," says Mike Gotta, an analyst with the Burton Group.

Microsoft is putting a lot of effort into online services, how does Yahoo help?

In addition to a huge install base, Yahoo would bring Flickr, arguably the most popular photo sharing site, and del.icio.us, for sharing Web site tags. Yahoo also has Pipes, a tool to aggregate and manipulate mashup content, and Mash, a way to connect a user's profile with other people. In addition, Yahoo owns Zimbra, a next generation collaboration suite that has some eye-popping AJAX-based technology. "Behind the firewall, Microsoft may look at del.icio.us because there is no tagging capability in SharePoint right now. And on the Zimbra side, the architecture and user experience is the most modernized collaboration application out there right now. The Exchange team would like to talk to the Zimbra team," Gotta says. "The user experience around Zimbra is so good that the Office and SharePoint teams would benefit from such insight."

Microsoft introduced a whole new lineup of enterprise search tools late last year and early this year bought Fast Search And Transfer. Yahoo has time-tesed search technology that likely will yield more than a few nuggets to support future R&D on enterprise search, but Microsoft's battle with Google in this market is nowhere near the lopsided contest it is on the consumer and online advertising side.
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