Yahoo – Game Over Dudes?

Kara Swisher over at All Things D  has an excellent post about the Yahoo Microsoft merger where in my view she suggests correctly that the game is pretty much over.    Google won’t do much to get in to this mess (they’d almost certainly be prohibited from aquiring Yahoo due to antitrust rules), and Microsoft is unlikely to up the generous offer which now amounts to about $29-$30 per share depending on Microsoft’s share price at the deal.   Most importantly, the Yahoo board cannot turn this down without the risk of lawsuits from now until the singularity.    If Microsoft had only offered a few dollars above the sagging YHOO share prices last week this story could be different, but I cannot see how the Yahoo board can come up with a plan to keep the stock around $30 per share AND turn down the Microsoft offer.    I suppose Google might sweep in with a good enough partnership that investors would not be spooked, but that now appears less likely and frankly if anybody might have a hint about that it would be Kara Swisher who has significant insider information about Google.

Ergo, MicroHoo appears to be coming soon to an internet near you.

Disclosure:  Long on Yahoo.

Yahoo and Google BFF?

Reuters reports that Yahoo really wants to find a way out of the MS deal, and Google is offering *something* though it’s not at all clear to any outsiders what that something is.    Probably a partnership to help Yahoo monetize all their traffic using Google tools and perhaps Google search, though I’m somewhat skeptical that Yahoo can come away from this with a valuation boost near the value of what MS has offered.

If Microsoft is smart they’ll let Yahoo be Yahoo, with contractual assurances that Yahoo can keep on innovating and doing what they have done well for some time in the overall internet and Web 2.0 space.  They’ll let Yahoo retain their brand and culture, and basically keep things the way they have been minus the crappy monetization.   In turn Yahoo will have a few years – with the newfound clout and help of MS – to turn around the crappy monetization, bad morale, and loss of search share.  

disclosure:  Got the Yahoo Stocks.  Loving the Yahoo stocks.  

Yahoo’s “response” to Microsoft

Wow, talk about saying nothing.   Yahoo’s official public response to MS is a blunt “we’ll consider it”.   Given that the offer was so high above Yahoo’s share price, especially after the earnings call meltdown on Tuesday, I’d hate to face shareholders after rejecting this offer which would likely send the stock down.    I just can’t see Yahoo refusing this in light of lackluster performance over the past few years and a questionable future.

The word in tech land seems to be that Jerry Yang really does not want to sell to Microsoft.    Understandably Yang probably wants more time at the helm to try to turn Yahoo around the good old fashioned way:   Hard work.     But I don’t think he’ll win this one.    C’mon Jerry – your net worth just went up what, a billion dollars on the Microsoft offer?   That’s got to be good for something.

 Dis Closure:  I got the Yahoo Stox.   I wants them to go up.

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.