Analysis of web titan Yahoo and its services.
Edit: Microsoft/Yahoo could easily end up being an all-cash deal.
In most negotiation games — including pretty much all in which money can change hands — there’s one outcome that makes the most sense for all concerned. They should agree to that outcome, and haggle about nothing except price.* In this case, the best outcome for Microsoft and Yahoo is a quick Microsoft takeover of Yahoo. That’s what I thought all along, due to a whole lot of Microsoft/Yahoo synergies. Michael Arrington reports, in confirmation, that there are no viable alternative bidders.
In such cases, the haggling over price depends a lot on each side’s “threat point” — i.e., their fallback position, and the (un)desirability of that fallback position for each side. Yahoo’s fallback position is probably one or more aggressive deals with other major internet players. Merely outsourcing its search business to Google would be stupid. Selling the search business to Google could fetch a wonderful price, because Google would be even more entrenched — but for exactly that reason, it would surely fail to pass antitrust muster. That’s why the Amazon idea that’s been floated is so crucial; a Yahoo/Amazon merger would actually be synergistic in its own way, and hence could command a price at least somewhat competitive with Microsoft’s offer.
As for Microsoft — despite successes in individual Internet areas, it has consistently failed to build a coherent Internet business. Yahoo has its own issues, obviously, but on the whole it’s maintained pretty decent Internet status even as its technological efforts have been consistently disappointing. If Microsoft doesn’t buy Yahoo, it probably needs to buy somebody else with a consistent record of Internet leadership, such as Amazon. That would also involve paying a large premium. And here’s a twist: If Amazon for any reason wants to sell to fellow Washingtonian Microsoft at a big premium, it’s best move may be to sabotage the Microsoft/Yahoo deal somehow.
One final note: If Yahoo outsources its search business to Google, the possibility of a Microsoft deal is gone forever. Microsoft can not be assured of winning a waiting game, the way Oracle outlasted Peoplesoft.
Bottom line: The Microsoft/Yahoo deal should and probably will happen, and Yahoo should and probably will be able to squeeze Microsoft for more money than has first been offered.
Microsoft and Yahoo were never more than a small part of the exit opportunity anyway.
A merged Microsoft/Yahoo will be so slow-moving it will create more opportunities for competition than it destroys.
Andreesen certainly knows about slow-moving behemoths making wasted acquisitions; Netscape was acquired by two companies (AOL and Sun) that both dribbled away the parts they respectively acquired.* However, I think he and a lot of other observers are missing something this time — the Microsoft/Yahoo synergies are too large to ignore.
*The legalities of the merger were a lot more complicated than that, but in essence AOL got the “internet” piece of Netscape and Sun got the enterprise side.
Microsoft is buying FAST; what about FAST’s contractual prohibition?
As you’ve probably heard by now, Microsoft is buying enterprise search vendor FAST (Fast Search & Transfer). FAST wasn’t always focused on enterprise search; in fact, FAST built alltheweb.com. And when FAST sold alltheweb.com to Inktomi, it agreed not to reenter the web search business itself. Inktomi was subsequently bought by Yahoo, a company not much inclined to do Microsoft any favors in the web search arena.
I look forward to hearing why this won’t be a problem.