Microsoft and Yahoo

I’m still digesting all the Yahoo Microsoft commentary but it seems to shake out as tech folks thinking it will not work and investment folks loving the deal.    Hmmm – the comments seemed favorable, but Microsoft lost a huge chunk of value in stock trading so clearly the “market” is skeptical of this.

One of the things I’ve noted in Silicon Valley is how popular Google has become and how poorly regarded Yahoo and Microsoft have been with respect to internet stuff, though part of this may be that I’m involved with mostly search related online events and conferences and Google clearly rules that roost.   I think the Google success and mystique has probably kept tech folks from focusing on the huge potential of a combined MS / Yahoo empire.    Where both Google and Yahoo have succeeded in capturing online traffic Microsoft has conspicuously failed.   Yet Microsoft has continued to pull very expensive enterprise computing rabbits out of its hat, with even the most recent earnings reports suggesting they still are a dominant and profitable force in the software market.     What better way to smooth the transition from old to new than to buy Yahoo?      Pitfalls?   Sure, but the cultural differences will be happily overlooked by Yahoo employees hungry to see their stock pulled out of the sewer.      If Microsoft is smart they won’t merge the brands – rather inject life and some cash into the flailing Yahoo search and affiliate system.    Microsoft could strongarm online affiliate publishers in a way Yahoo could not – by essentially bribing them to move over from Google via 100% revenue sharing.    The extra total traffic and buzz would be well worth the sacrifice of some of the publishing money.     

As a Yahoo stock holder I’m obviously happy to see the offering price pull the stock up, and positive attention focused on this deal, but I also think it’s a good ideas for the reasons I’ve discussed over the past year.   Most notably MS internet failures, Yahoo’s internet successes in Web 2.0, and the huge combined traffic footprint of a combo-company.

Henry Blodget, who helped me in an oblique way with his rumor that pushed me to buy more Yahoo on Tuesday, now is reporting that there may be other parties interested in Yahoo.   This would make sense given the companies clear potential to be as successful as Google while it languishes at a Market capitalization of about 20% of Google.   I’ve never understood the huge pessimism about the company – clearly the “number two” online behemoth.     We’ve got dozens of major automakers, oil companies, etc.  Why is there an assumption that only Google can succeed online?

Disclosure:  I’ve got Yahoo, and finally don’t have to say that hanging my head in shame.

Israel Web Tour coming to Silicon Valley

Following is a Press Release – this looks like a very interesting event for Silicon Valley:

IsraelWebTour Returns to Silicon Valley with 15 Hot Web Startups

California Israel Chamber of Commerce Announces 15 Israel-based Companies to Tour Silicon Valley

SAN FRANCISCO January 16, 2008 The California Israel Chamber of Commerce (CICC) has announced the selection of 15 startups that will be touring Silicon Valley as part of its popular road show. 
The Tour will kick off on February 4th, 2008 when CEOs from Israel’s most exciting startups arrive in Silicon Valley for a week of activities.  The companies will meet with investors, strategic partners, customers, entrepreneurs and industry leaders in a mix of private one-on-one meetings, roundtable discussions and ad-hoc networking events. The highlight of the week will be a public showcase on Wednesday, February 6h hosted at Microsoft where each start-up will present to the industry and press. The tour will end with a closing night party in San Francisco on February 7th.
Over 90 companies applied to take part in this year s tour.  The IsraelWebTour Committee selected the following 15 startups:
5min –
PLYmedia –
AllofMe –
NuConomy –
ClickTale – –
Sportingo –
PicScout  –
Qoof –
8hands –
Velingo  –
Erayo –
Semingo –
PageOnce –
Journeys –
The IsraelWebTour is an initiative spearheaded by the CICC (The California Israel Chamber of Commerce) – a non-governmental, industry supported organization.  The 2008 Tour is sponsored by: Google, Yahoo, Adobe, Sun Microsystems, Microsoft, Lehman Brothers, USVP, Wilson Sonsini Goodrich and Rosatti, Elron and Gemini Israel Funds and the Israeli Consulate in San Francisco.
The IsraelWebTour is proven to be an excellent platform to present and accelerate emerging internet start-ups from Israel — offering hands-on tools, strategies and fast- track access to Silicon Valley s leading VCs, companies and industry influencers, said Shuly Galili, Executive Director, CICC.
About California Israel Chamber of Commerce
The California Israel Chamber of Commerce (CICC) is a not-for-profit, non-governmental membership supported organization dedicated to strengthening business and economic relations between California and Israel. With its wide and dynamic network of over 5,000 companies, business executives and investors, CICC is positioned to serve as a facilitator and active supporter for joint ventures between the two communities. Through its programs and activities CICC supports hundreds of Israeli entrepreneurs through their journey to grow, fund and advance their startup companies.

Why Microsoft+Yahoo>Google

The Yahoo Microsoft Merger is a very good idea.   Although Yahoo is in some ways a different culture from Microsoft, It seems to me that both of those corporate cultures have become bureaucratic, sluggish, and uninspired when compared to Google’s freewheeling yet very productive approaches.    Yet very importantly, the thousands of Yahoo and MS employees are very impressive, and certainly capable of great things as the online world is reinvented on a regular basis.

If Microsoft can pool the innovations of the LIVE project with Yahoo’s superb developer support programs, and hire and inspire more people to have the evangelical zeal of Googlers, it could be a whole new online ballgame.

The big reason this makes sense is actually very simple, yet is seems to be missed by many analysts now ranting about this as a bad idea.    It’s a mathematical reason.    The traffic from Yahoo+ Microsoft is very substantial.    Yahoo had more total traffic than Google before the merger – it just didn’t have as much of the lucrative search traffic and did not monetize the traffic as well.  With Microsoft traffic, the combined Yahoo Microsoft company will still initially lag Google in search traffic, but it will have *far greater* total web traffic.    This is hugely significant, especially if Microsoft begins to focus more on how important it is to drive potential searchers to search portals inside their own network.    Fear of lawsuits and lack of interest in what for Microsoft was a small revenue source led them to failure in the search business.     Although the LIVE project was inspired, search share still lags so far behind Yahoo and Google that rolling all this into Yahoo search makes a lot of sense.       The combined company would control an enormous share of  global web traffic, and it won’t take too much imagination or innovation to redirect this far more profitably than now.  

Microsoft remains the overwhelmingly huge legacy player in the information technology space.    Google is the clear leader as the new  player.   Can Yahoo inject enough energy into the monstrous Microsoft machine to compete effectively in the online space?    I think there are many potential pitfalls, but on balance  you need to do the math, which says that in online footprint, content, and market capitalization:

Microsoft +Yahoo > Google.  

News release from Microsoft

Disclosure:   I have Yahoo shares.  In fact I doubled them on Tuesday!  Yippee!

Microsoft offers to buy Yahoo

I’m feeling kind of smart today after feeling stupid *yesterday*.    I had doubled my Yahoo stake before the earnings call, wrongly thinking that a good report was in store.     However just fair earnings and poor guidance knocked the stock back a few dollars the next day.     But it’s surging today as Microsoft has offered 44.6 billion for Yahoo, effectively making it worth a lot more than yesterday.

Perhaps the price hit after earnings drove Yahoo to some sort of strike point for Microsoft.    At CES I  think I may have been right to suggest there were high level meetings between Gates and Yang regarding a Microsoft Yahoo Merger , clearly MS must have been thinking about this for some time.  Rumors have been swirling for over a year.