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Microsoft bids to acquire Yahoo and take on giant Google
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04/02/2008
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Microsoft’s $44.6 billion hostile offer for troubled Internet search giant Yahoo, announced last Friday, is being viewed as an all-out bid to rescue its lacklustre position in the online search and advertising world.
The software giant trails leader Google in this space by a massive margin, but Yahoo’s falling share price gives it a real opportunity, say analysts to play catch-up – despite Microsoft’s well-known preferred position of innovating in-house.
It’s all about buying a big enough share of the market to be a credible online alternative to Google, with both advertisers and users. In its most recent quarter, Microsoft had online revenue of $863 million, Yahoo had $1.8 billion, but Google posted a staggering $4.8 billion. A combined $2.6 billion-plus at a combined Microsoft and Yahoo might just make the difference.
Google is clearly conscious of the new threat to what has been a meteoric rise to fortune. In a blog posted on Sunday, David Drummond, senior vice president, corporate development and chief legal officer at Google, said: “Microsoft's hostile bid for Yahoo raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet – openness and innovation.”
He goes on to question Microsoft’s motives, drawing attention to what he sees as undesirable past practice: “Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC? Could the acquisition of Yahoo allow Microsoft – despite its legacy of serious legal and regulatory offences – to extend unfair practices from browsers and operating systems to the Internet?”
Microsoft, meanwhile, says its proposal would allow Yahoo shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, making the point that its offer represents a 62% premium above the closing price of Yahoo common stock on January 31st.
“We have great respect for Yahoo, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market,” says Steve Ballmer, chief executive officer of Microsoft, who is championing the bid. “We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners.”
The online advertising market is growing at fast, with analysts expecting it to reach nearly $80 billion by 2010, from $40 billion in 2007. For Microsoft and Yahoo, the benefits of scale, along with the associated capital costs for advertising platform providers, make this a time of industry consolidation and convergence.
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Author
Staff reporter
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