Forbes Column 08: The Microsoft-Yahoo! Battle Plan

As you know, I am of the opinion the deal will go through, despite all the scrambling. News is gradually flowing in that Yahoo! doesn’t really have other options in the works. News Corp has declined. AT&T and Comcast are not interested. Google is not an option. Private Equity is also not an option anymore.

So, here’s my Forbes column pondering where Microsoft needs to focus Yahoo to battle Google,
The Microsoft-Yahoo! Battle Plan.

This is going to be a very, very complex merger to integrate, so choosing the battles to fight would be crucial. That would allow Microsoft to slice off big, non-performing chunks of Yahoo’s portfolio, and simplify matters.

This segment is a part in the series : Forbes Column 08

Comments

Sramana, whats your take on the valuation of the Microsoft offer ??

With current Yahoo EPS of 0.47, Microsoft offer is at P/E of 66. I think Microsoft is paying a bit too much… But is this a strategy to shut out other exit options a la Facebook stake ?

Balaji Tuesday, February 5, 2008 at 6:24 PM PT

I think Microsoft can recover what they’re paying if they can execute on this deal. I am not too concerned about the price. Yes, some of the high-ball offer is to shut others out.

Sramana Mitra Tuesday, February 5, 2008 at 9:10 PM PT

Sranama – Loved reading your analysis and I believe is pretty close to being “on the money”.

However, there is one thing that bothers me about the long term, strategic value of this proposed deal. The primary reason why Microsoft wants to invest in Yahoo is to become a formidable competetion to Google (and ofcourse, get a bigger chuck of the ad-based-revenue action). But the success and laurels that Google is sitting on top of today happened in a very organic manner. They made a series of right choices, bets, and investments. They made a conscious effort to be different from others in their space. They have succeeded in creating an engine of innovation and a culture which fosters the best of Entrepreneurship.

Identifying genuine gaps in Google’s defense is one thing but coming up with a plan, executing on it, and building products that avail those opportunities is an entire different thing. Who ever decides to take on Google will, to some degree, need to replicate the Google model and way. Agreed we are talking about 2 technology giants here, Microsoft and Yahoo, who have at various times been highly innovative and successful. And one could make the case that if anybody could chase those opportunities successfully, it would be a combo of these 2 companies. But Microsoft better have a damn good idea of how they plan on exploiting the gaps in Google’s armor and how they will ensure that their products will be worthwhile options to other competetive products. Of course, Google likes these kind of free analysis everybody is doing for them (they must have truck-loads of their own SWOT analysis) and has a few teams working on plugging these gaps.

I am just trying to throw in some caution here since we are talking about taking on an industry leader, best-in-class, and game-changer.

Uday Kumar Wednesday, February 6, 2008 at 9:44 AM PT

Uday, Google makes almost all its money from AdWords, AdSense, and Doubleclick. None of the “entrepreneurial” stuff inside Google are exactly money-spinners.

They have the luxury of sitting around and playing with lots of projects, that’s all very well.

Microsoft has always executed on many money-spinning businesses. If you take seasoned management into account, I would bet on Microsoft long before I would bet on Google.

As for Yahoo, it desperately needs a seasoned management structure, and it needs to be run by people who know how to run complex businesses.

The challenge is execution, for sure, but I wouldn’t discount Microsoft on that front. Even their smallest businesses are pretty large.

Sramana Mitra Wednesday, February 6, 2008 at 10:19 AM PT

I will make the bold prediction that Yahoo will outsource horizontal search to Google. Yang wants to protect Yahoo’s independence, and is no fan of Microsoft.

If you’re correct in predicting that verticals are going to be so important in the future, then you’re also right to suggest that Yahoo should remain independent. It also ought to be in the Yahoo shareholders best interest, assuming Yahoo management can eventually figure out how to build up and monetize their verticals before other new entrants figure out the vertical spaces first. They may also consider buying kayak, monster, trulia and others who are already figuring out the vertical world.

Although, as you say, a company ought not depend on its’ main competitor for anything; Microsoft has succeeded in pushing Yahoo to the point of desperation – and therefore straight into the hands of Google. Everyone is convinced the Microsoft deal will go through, and there don’t seem to be too many options for Yahoo.

It is more important for Yahoo to protect its’ independence, than to worry about conceding horizontal search to Google. Besides Google has already won the horizontal search space anyway. It makes more strategic sense for Yahoo to focus its’ energies on building out the vertical spaces. Yahoo will make better use of their engineering talent to building out world class 3.0 verticals, than trying to be Google.

Realtosh Wednesday, February 6, 2008 at 11:49 PM PT

I have also said that the deal is inevitable.

Sramana Mitra Thursday, February 7, 2008 at 10:37 AM PT

[…] realize that search is their weakest link and had hoped the acquisition of Yahoo! would have helped resolve this issue. But with the deal mucked up, they are back to square […]

Microsoft Unencouraging - Sramana Mitra on Strategy Saturday, July 19, 2008 at 4:17 AM PT