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Microsoft’s Yahoo! Bid Has Wider Impact beyond Ads and Search| Feb 4, 2008 | Internet/Managed Services - U.S. | Competitive Intelligence Report
Event SummaryFebruary 1, 2008 -- Microsoft Corp. proposed to the Yahoo! Board of Directors to acquire all the outstanding shares of Yahoo! common stock for per-share consideration of $31, representing a total equity value of approximately $44.6 billion. Microsoft’s proposal would allow the Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock. Microsoft believes the key to this deal is the resulting benefit of scale and associated capital costs for a combined advertising platform. Analytical Summary• Current Perspective: Neutral on Microsoft’s bid to acquire Yahoo!, as the move has repercussions beyond the search and advertising space, including changing the instant messaging and SaaS market dynamics. Microsoft’s success at completing this merger is made much more sketchy by market forces and regulatory influences, and this uncertainty could hurt efforts for success in the market as well for Microsoft and Yahoo!. • Vendor Importance: High to Microsoft, as it is evident that by making an unsolicited offer to acquire Yahoo!, the company reveals its weaker hand against Google, but in making the push, Microsoft looks to overcome this while disadvantaged and win favorable regulatory reviews. The move will help to strengthen Microsoft by boosting the number of combined IM users as one component it needs. • Market Impact: Very high on the messaging market, as these two players have been key rivals against AOL for market supremacy, playing second fiddle to AOL, but with emerging efforts by Google with Google Talk and the adoption of Skype for both voice and IM, the distraction of a merger could jeopardize current success, creating a tidal wave of market disruption. Recommended Competitor Actions• Competitors in general can point out that this is not a match made in heaven. In addition, Microsoft’s unsolicited bid for Yahoo! is likely to yield a frothy turbulence that competitors can use to generate FUD (fear, uncertainty, doubts) to persuade prospects to hold off on a deal with either company. • AT&T has had a long relationship with Yahoo!, chiefly in its consumer DSL markets. It will need to weigh the nature of this ongoing relationship in light of a Microsoft-flavored company that could lead to stronger ties for other parts of its business such as managed applications, messaging (including hosted exchange), and security. • IBM will need to monitor the progress of this deal, especially for its Sametime messaging service providing enterprise instant messaging, conferencing, and collaboration, as this deal could pose a larger threat with a larger mass of IM users under the Microsoft umbrella. • Google can launch its own counter offensive, playing up Microsoft’s past market dominances and playing on fears that a combined Microsoft-Yahoo! would be bad for consumers because of fewer choices. Recommended End User / Customer Actions• End users currently considering Microsoft or Yahoo! for their messaging or managed application solution will see little need to change their considerations in the short run, as this deal is likely to take a long time before its final entity and resolution emerges. Companies will want to consider back-up plans in the long term to ensure business continuity and should factor these into any multi-year contracts. CLIENTS ONLY Current PerspectiveCompetitive Positives and ConcernsRecommended Vendor Actions| Client access - Internet/Managed Services - U.S. | More information |
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