Tuesday, May 6, 2008

Microsoft-Yahoo Saga: What Future Holds For Both Companies

Lots have been discussed about Microsoft's unsuccessful bid for Yahoo! in the web by now. One can find hundereds of arguments for and against the proposed deal in the blogosphere. This proposed merger was one of the highly discussed topic in the web for the last two months or so, since the Redmond giant's open offer for Yahoo! in early February.

But there is another twist in the never-ending tale, Silicon Alley Insider is reporting that Yahoo! would be happy to reopen talks with Microsoft and are willing to deal below $37.

So now Yahoo! wants Microsoft back on the table for negotiation and milk couple of dollars more, and probably settle for $34 or $35.

But why this sudden backtracking?

Silicon Alley Insider says some of the major investors in Yahoo! are angry with Yang and Co. and the way they handled the situation. It says that most shareholders would have been happy with a price of $34 range and according the investors, Yahoo! lost an opportunity.

But I think the story is not over. What we have seen till now is just the phase I of the saga. I think Microsoft will be back on the negotiating table in a couple of weeks if not days from now. And Yahoo! will fall in line. The reason? In real life, we don't have too many choices.

If we analyse the two companies seperately, things will become much more clearer.

Yahoo! as a company is a huge success and the balance sheet looks fine, but not that great. For the last couple of years, they are struggling to keep up the numbers and are not the darlings of Wallstreet anymore.

The so-called strategic partnership with Google for adv outsourcing will bring some dollars (oops, about $1 billion according to some estimates) in the short-term. But the deal will be the beginning of the end of Yahoo! as the search engine.

Just imagine Google getting the critical information of user searches from Yahoo! and you know what Google can do with those information. Google is really smart on that. In real life, we don't do partnerships with our enemies, would you?

Now take Microsoft, a highly successful software company with huge pile of cash reserve, aggresively moving into online business without too much of success. Yahoo! is the perfect partner here.

To continue its growth and to be more successful and compete with the likes of Google,
both companies need a partner. And both Microsoft and Yahoo complement each other in their business.

That's why I said in the beginning Microsoft and Yahoo! don't have too many choices when it comes to finding a partner.

Let us hope that deal is not off the table and hopefully have a happy ending.


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