Microsoft makes offer for Yahoo

As I told my IS 7010 class last night, Microsoft wants to buy Yahoo. Microsoft made the announce­ment this morn­ing (AP, New York Times, Val­ley­Wag, Boing­Bo­ing). The offer is almost US$45 bil­lion in cash, or $31 per share.

Note: I didn’t dis­cuss this story with any­one I know at Microsoft (MSFT) or Yahoo (YHOO) , and I don’t own stock in either company.

This deal has been antic­i­pated for almost a year now, ever since for­mer Yahoo CEO Terry Semel spurned another Microsoft offer to pur­chase Yahoo. Microsoft needs Yahoo’s tech­nol­ogy, user base and web prop­er­ties to bat­tle Google. Here’s a 10 Jan­u­ary 2008 blog arti­cle that dis­cussed a few aspects of an antic­i­pated merger, and a response that more or less said such a deal was a fantasy.

As the New York Times points out, this offer is well-timed. If Yahoo doesn’t come to terms quickly, Microsoft can pur­sue a hos­tile takeover through sev­eral means, includ­ing a board takeover at Yahoo’s June annual meeting.

Yahoo has lost its yodel

Yahoo co-founder Jerry Yang took over as the company’s CEO last year. He hasn’t helped a great deal, but he may be one of the few Yahoo CXOs to remain after Microsoft cleans house. Co-Founder David Filo will go to work in Microsoft’s data cen­ter divi­sion. As Val­ley­Wag points out, if Microsoft wanted to keep the remain­ing CXOs, this would have been a friendly takeover offer.

This Busi­ness­Week arti­cle is mild com­pared to other crit­i­cism of Yahoo that I had read in the Wall Street Jour­nal, SearchEngineLand and Screen­werk.

The com­pany had pre­vi­ously announced that it was lay­ing off 1000 employ­ees. Finan­cial results were below expec­ta­tions, and the online adver­tis­ing mar­ket is in flux. Yahoo depends on ad rev­enue to fund its acqui­si­tions, but Microsoft, Google and other com­pa­nies have been more aggressive.

Yahoo is also los­ing a sig­nif­i­cant chunk of its guar­an­teed rev­enue from AT&T’s res­i­den­tial DSL busi­ness. A new web adver­tis­ing deal for AT&T’s mobile net­work may cush­ion the blow. Yang promised a plan to renew Yahoo within his first 100 days. After 200 days, stake­hold­ers are still waiting.

Microsoft needs Yahoo’s posi­tion in web adver­tis­ing, and could eas­ily absorb Yahoo’s large inter­na­tional user com­mu­nity. After that, it’s a sort­ing process that’s sim­i­lar to what HP did with Com­paq. There is a great deal of over­lap between the Microsft’s and Yahoo’s web ser­vices, includ­ing search, web­mail, IM, online images, social book­mark­ing, and news. I’m sure Microsoft’s CXOs have an ini­tial plan, but the merger – if it does hap­pen – would take 2 years before the dust set­tles. SearchEngineLand has posted a long arti­cle that dis­cusses what might hap­pen in each busi­ness unit.

In a way, I’m almost sad to see Yahoo in play. I still use my first Yahoo ID, which has a space char­ac­ter in it. Yahoo fixed that hole a few months after I set up that account in 1996.

The com­pany was the first major com­mer­cial Inter­net search por­tal, but it’s best days were in the 20th cen­tury. I have often used Yahoo’s main page as an exam­ple of clut­tered web design and as a sym­bol of an overly broad cor­po­rate strat­egy. MSN.com’s main page isn’t much better.

Tagged as: advertising, at&t, business_model, ceo, cxo, data-center, Google, Internet, Microsoft, mobile, network, revenue, social, Yahoo