This past weekend, Dave posted about how hard a hit our small sites would take if Microsoft did indeed buy Yahoo, as the rumors right now are suggesting. I, however, don’t buy it…
Why?
Well, it’s a combination of factors, but mostly it’s all about price: Microsoft doesn’t have any problems buying up small companies worth a few hundred million or even a few billion, but with a rumored $50 billion dollar price tag, I think this is a bit of a stretch for Microsoft. Not that they can’t afford it, it’s just that Microsoft rarely does well when it leaves the operating system market - and with Yahoo earning around $6 billion a year, I just can’t see them selling out cheap. If Yahoo was on the way to becoming a dominant player, it may be a different story, but Yahoo is having the same problems and is steadily losing market share to the big G themselves.
If you look beyond the price tag, a takeover deal comes across more as two drowning people grabbing onto each other for dear life. MSN clearly has a poor search product, which has meant a steady decline in their user base, and Yahoo has traffic but a poor contextual advertising system. The problem is, as great as Yahoo is now, it’s still playing catchup to Google… and as far as I can tell, there aren’t any major innovations in the pipe that could leapfrog them into the lead.
This means if Microsoft were to bite the bullet and buy Yahoo, they would be buying a company in decline, creating an inferior advertising product combined with the poor history of products like the Zune and the excellent Xbox product lines, which have been bleeding around $1 billion every year from the bottom line.
Now to play the devil’s advocate, I do have to admit the deal makes a certain amount of sense - which is probably why so many like shoemoney think this deal should and will happen. Yahoo owns a number of plumb online properties which could give Microsoft’s ad center the traffic it needs to shine.
It’s just that $50 billion or so is for keeps, and it’s a lot of cash - even for Microsoft - and I just can’t see Microsoft shareholders being swept away and allowing their shares to be diluted with a stock deal either.
