I have to admit that I love watching the Microsoft, Yahoo, and AOL saga unfold. What is of peculiar interest to me is the number of industry analysts, pundits, and writers that seem to know absolutely nothing about technology, let alone business, that continue to write absurd articles about the validity of a Microsoft merger. Outside of Carl Icahn’s arguments regarding shareholder value, does a Microsoft acquisition of Yahoo make any sense?
Yahoo’s strength lies more within their portal and less within their search and advertisement placements. A fact that Yahoo themselves have recognized via their proposed link with Google AdSense. As a destination, Yahoo is “first-rate” with limited competition. From Yahoo News and Finance, to Instant Messaging and Email, Yahoo is a truly a remarkable destination. However, their search and advertising business leaves a lot to be desired.
Back-in-the-day, Google became a giant by having relevant search with limited advertising. In fact, Google’s search was so accurate that while employed by Inktomi, a rival to Google, many of us used it instead of our own search technology. Google’s genius was creating a revenue platform around their search technology that continues to generate billions of dollars a year. Yahoo tried to counter Google’s superior technology by purchasing both Inktomi and Overture. Sadly, history won’t be kind to either of those decisions.
Examining Microsoft yields many concrete comparisons to Yahoo. Microsoft is a decent portal destination with a wide array of on-line services. However, their search and advertisement placements are horrible. Microsoft attempted to correct the situation by engaging in a massive engineering and development effort culminating with the launch of a “new” search engine and purchasing aQuantive. However, neither of these moves has made a dent in Google’s armor.
Simply put, Google’s search experience is superior to both Microsoft and Yahoo. It’s clean, fairly relevant (getting worse), and extremely useable. Additionally, Google’s AdSense and accompanying management tools are miles ahead of both Yahoo and Microsoft. Therefore, why does a Microsoft and Yahoo acquisition make sense?
Combining Microsoft and Yahoo’s sub-par search engine technology is complicated and the results are sure to be uninspiring. Furthermore, the same can be said of a combination of their respective advertising systems. Unfortunately, this is not a math problem and the combination of these units does not equate to generating long term revenue success. How hard is it to switch from Yahoo to Google or Microsoft to Google advertising?
Have we forgotten that Microsoft maintains a healthy business that is growing revenues and continues to compete across multiple markets? They have billions of cash in the bank with billions more arriving every year on the heels of new and updated products that are beginning to hit the market. The perceived and overblown rivalry between Google and Microsoft is ridiculous. Google needs more products, new ideas, and years of prolonged growth to even get into Microsoft’s league (I’ll leave that to another article).
While a combination of Microsoft and Yahoo would surely line the pockets of large institutional investors, investment banks, M&A advisors, and Carl Icahn himself, it only makes sense if their intent is to combine the portals and ditch the rest. Based on Microsoft’s latest offer and Icahn’s stated plans, this acquisition makes no sense.