« Rough Type gains geek cred | Main | The YouTube elite »

Microsoft eyeing Yahoo

May 04, 2007

Microsoft has hired Goldman Sachs to help it acquire Yahoo, the New York Post reports today. Writes the paper:

Stung by the loss of Internet advertising firm DoubleClick to Google last month, Microsoft has intensified its pursuit of a deal with Yahoo!, asking the company to re-enter formal negotiations ... The new approach follows an offer Microsoft made to acquire Yahoo! a few months ago, sources said. But Yahoo! spurned the advances of the Redmond, Wash.-based software giant. Wall Street sources put a roughly $50 billion price tag on Yahoo!.

Buying Yahoo would represent a hugely risky bet for Microsoft, as both companies have been struggling with the management of their internet businesses, losing search and advertising share to Google. Combining two weak performers rarely produces a strong performer.

Henry Blodget suggests that, should the companies merge, Microsoft should immediately bundle up its Yahoo-MSN web properties and spin them off. That not only seems unlikely (as Blodget notes), but would also undermine the long-term rationale of a merger. For players like Google, Microsoft, and Yahoo, content and services - the media business and the software business - are becoming inextricably intertwined, all the way from the underlying data-center infrastructure to the point of consumption. Microsoft has come to believe, for instance, that advertising will be central to the software business in the future. It's not going to spin off its ad networks or search functions.

Nevertheless, the odds against such a merger paying off are high. But maybe Microsoft, despite downplaying its rivalry with Google, is starting to feel desperate. And maybe Yahoo is, too.

UPDATE: The Wall Street Journal, following up on the Post report, has more details. It notes the organizational upheavals that might follow a merger:

Top Yahoo executives could be a big obstacle to any deal. Co-founder Jerry Yang, for one, has a reputation for disliking Microsoft and avoids using Microsoft products, says one person familiar with the matter. Top Yahoo staff might leave if Microsoft acquired the company and triggered a vesting of their Yahoo options.

UPDATE: Scott Rosenberg posits that a Microsoft-Yahoo merger would be a replay of the AOL-Time Warner deal, signaling, among other things, an impending market top. Things do seem to be getting frothy out there.


The risk would be mitigated if Yahoo and Microsoft individually had products that matched Google's. In that scenario pooling products under a single brand may present a serious opportunity to compete with Google. However, both Yahoo and Microsoft's search products and self-service advertising solutions are inferior to Google's and combining them won't change that.

As for Yahoo and Microsoft becoming desperate, I think that is the only reason either would consider a deal. And desperation rarely produces logical decisions.

Posted by: kennyhemphill [TypeKey Profile Page] at May 4, 2007 09:25 AM


As you know, most mergers fail.

Yet merger activity bubbles up frequently as a sign of market disruption: When managers can't deliver the kind of growth that the CEO or the public markets expect, mergers start looking like a good idea, despite the huge risks you refer to.

We've seen this in recent months in newspapers ...telecom... and now software.

Here's a video on some of the warning signs of disruption (8:56min)



Posted by: Michael Urlocker [TypeKey Profile Page] at May 4, 2007 11:14 AM

Post a comment

Thanks for signing in, . Now you can comment. (sign out)

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)

Remember me?

carrshot5.jpg Subscribe to Rough Type

Now in paperback:
shallowspbk2.jpg Pulitzer Prize Finalist

"Riveting" -San Francisco Chronicle

"Rewarding" -Financial Times

"Revelatory" -Booklist

Order from Amazon

Visit The Shallows site

The Cloud, demystified: bigswitchcover2thumb.jpg "Future Shock for the web-apps era" -Fast Company

"Ominously prescient" -Kirkus Reviews

"Riveting stuff" -New York Post

Order from Amazon

Visit Big Switch site

Greatest hits

The amorality of Web 2.0

Twitter dot dash

The engine of serendipity

The editor and the crowd

Avatars consume as much electricity as Brazilians

The great unread

The love song of J. Alfred Prufrock's avatar

Flight of the wingless coffin fly

Sharecropping the long tail

The social graft

Steve's devices

MySpace's vacancy

The dingo stole my avatar

Excuse me while I blog

Other writing

Is Google Making Us Stupid?

The ignorance of crowds

The recorded life

The end of corporate computing

IT doesn't matter

The parasitic blogger

The sixth force



The limits of computers: Order from Amazon

Visit book site

Rough Type is:

Written and published by
Nicholas Carr

Designed by

JavaScript must be enabled to display this email address.