Tuesday, February 12, 2008

Let the Wars Begin

As fast as the news of the bid from Microsoft for Yahoo, so did the news that Yahoo! officially rejected the officer yesterday.

In this letter from Jerry Yang to his employees, he claims that the Yahoo! bid was unfair, and didn’t value what Yahoo! really was to the internet world. Here’s a part of the letter:

We believe Microsoft’s proposal substantially undervalues Yahoo! including our highly recognizable global brand, large worldwide audience, significant recent investments in advertising platforms, future growth prospects, our ability to generate free cash flow and our earnings potential as well as substantial unconsolidated investments (like alibaba and yahoo! japan).

You deserve the credit for the tremendously valuable business we have built. all of us in management, as well as the members of the board, deeply appreciate and respect what you have done and continue to do in order to maintain and enhance yahoo!'s leadership position in the online world.

However, with all this said in his letter, there is word that there could be more layoffs in the future. In this article at the New York Times, Microsoft didn’t appreciate Yahoo!’s rejection of their bid and called it “unfortunate.” They want this deal, and are making indications that they’re not willing to stop until they have Yahoo! as their own. Sources also report that Microsoft would like to keep it friendly, and stay on good terms with Yahoo. In today’s New York Times, they state that stocks closed 2% higher yesterday at Yahoo because of the belief that Microsoft will increase the bid. The other thing speculated about the bid is that Microsoft will put an end date and have the offer expire.

I think the easiest way to take in this situation is to look at it from both sides. I’ll start with Yahoo. It’s understandable that Jerry Yang doesn’t want to sell his business. They are currently the leaders in many things on the internet, such as music, gaming, and personalized pages. They were the search engine to use a decade ago. However, they’ve fallen behind in the one thing they started out doing: the internet search. They can’t compete with Google in the search world. They’re also loosing money and laying off employees left and right.

Microsoft is clearly threatened by the surge of Google’s dominance in the Enterprise 2.0 world and their overall dominance of the internet market. Microsoft isn’t used to loosing when it comes to deals and world dominance on software. They buy Yahoo! and they have a whole new staff with knowledge that can help them attack Google and give them an official competitor.

However, Yahoo! does have other options. It’s come back into the news that they’ve resurrected talks to merge with AOL. I see no advantages into this. Although it’s probably not going to happen because its one last attempt to keep business going, two struggling companies in a desperate last minute merger has failure written all over it. Google has also offered to help out Yahoo! In this article, Yahoo would start running AdSense on its pages, but this would show that Yahoo! is defeated, because in a sense it’s working for its one true competitor. In a sense, Google will be the one winning everything here, they’ve gotten a signed letter of defeat from their relatively only major competitor. And they don’t have to worry about the biggest software vendor in the world starting to compete anytime soon in the majority of the realms they do work in.

I personally think Yahoo! did well by rejecting the first offer. They know Microsoft is serious about their bid. So, I believe that when Microsoft comes back with a higher bid price, Yahoo! should take it. Their business is suffering, they’ve lost dominance. I think giving in to Google is a bad idea and would kill all dignity this once powerful search engine has left. So, Yahoo!, let another big name company come in, buy and begin to watch what happens when the collaboration starts to take off for Microsoft and Yahoo!.

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