Why does Microsoft want to buy Yahoo?Posted: October 9, 2011
Are you aware that Microsoft is considering taking another shot at buying Yahoo? I’m sure most of you recall back in 2008, Microsoft tried to buy Yahoo for $47.5 billion and was rejected. But it’s not the offer that has my mind churning…it’s that Microsoft made the offer….again!. What is it that has drawn the attention of a company who’s CEO Steve Ballmer has been quoted on numerous occasion as saying that Microsoft doesn’t understand nor wants to be in the media industry. Does MS know something the other companies don’t? Or is it simply the half off price from MS offer in 2008? I agree it really doesn’t make any sense on the surface; however, with a few probing questions I believe you will see the benefit.
Could it be an attempt to Top Google?
Here are the comScore charts for August 2011 (Sept. wasn’t available). If Microsoft acquires Yahoo, Microsoft would have the most unique visitors of any company in the market. Yes, even more than Google, though not by a lot MS/Yahoo would have 212 million to Google’s 183 million. Regardless Microsoft would successfully do what no other company has, and that is to kick the mighty Google off the top of the hill. If you don’t think that accomplishment interests Microsoft, then I have a five dollar bill I’ll sell you for $20. This purchase would also put Microsoft’s Ad Network on top of the hill, again overtaking Google. Not a bad deal there, Microsoft can go from a dismal 21st to the top with one acquisition.
“So, why doesn’t Google just buy Yahoo first?”
Good question, let’s look at that for a second. For Google there is no real benefit, other than just to piss off Microsoft. Google is already the current #1 in this market; on the other hand, Microsoft stands to gain quite a bit, as it is a chance to take the top spot of a another market. However, if Google buying Yahoo would be no different than if Google just kicked Microsoft in the junk and thumbed them in the eye! The only real benefit for Google, that I see, in obtaining Yahoo is simply a preventative one. Get Yahoo off the market, so no one else can buy them.
So, is that the reason Microsoft is looking at yahoo: To knock Google off the hill?
I don’t think it is, because the Yahoo buyout process would be a pretty substantial headache for Microsoft. Think about it this way; in order for Microsoft to purchase Yahoo it would have to pay at least $25 Billion (When this rumor made it’s debut on Friday, Yahoo went up like 10%). That puts Yahoo’s market Cap somewhere above $20 billion. However, the 25 billion is still a “clearance sale” price for Microsoft (MS was offering 47.5 billion just 3 -4 years ago!). There is something else to consider here. Yes, when wielded by Microsoft, Yahoo does become a pretty impressive “whooping stick” to take up side Google’s head, to claim the top of the hill. However, Yahoo also brings some baggage with it as well . For instance with Yahoo also comes all of Yahoo’s properties and data-centers which make up Yahoo’s depreciating assets. On top of that Microsoft will have to consolidate Yahoo’s workforce. If you ask me, that’s a pretty tall order for something CEO Ballmar calls, “a declining asset”. Unless Microsoft is having what alcoholics refer to as “a moment of clarity” I don’t see MS going through all of this to claim the top spot of a market that; a.) they cannot sustain and b.) know nothing about.
So with all that baggage why would Microsoft want to buy Yahoo?
The only way that makes any form of sense to me is a scenario where Microsoft buys Yahoo and burns it to the ground. Meaning, MS fires all the people involved in HR, legal, the board of directors, and just leave it scorched. No efforts for a new partnership, No complicated back-end infrastructure-blending projects. going after Google… just leave it as a shell that incurs very little expense. Then, Microsoft could use Yahoo’s profits ($1.2 billion last year) put it toward counterbalancing the losses MS incurred with Bing (approx. $3 billion a year). This should shrink, what investors call “The Black Hole that is Online Microsoft.”
Along with that, Microsoft could take all the unsold inventory on Yahoo’s sites and plaster it with free ads for Windows 8, Office 365,etc. etc. Even better it could blast the vast Yahoos properties with links to every Microsoft product ever invented in particular Skype, Mango, and all ot it’s new ideas coming down the pipe that stand to generate substanialy revenue.
A $25 billion dollar ad campaign?! Would Microsoft really do something like that? Hey, it worked with Skype didn’t it?