Microsoft needs Yahoo
For those of you following the process of Microsoft taking over Yahoo, today is the day to read the news. As you know, Microsoft gave Yahoo some time to think about the second bid, which is lower than the first one, and today is the day when Yahoo will have to give the answer.
Yahoo refused the first offer, which wasn’t bad at all. The second offer is about 3B lower, and I don’t think that Yahoo will say “yes”. Most likely, the takeover will be hostile as Microsoft said that they will take it directly to shareholders if Yahoo refuses their latest bid.
I don’t mind Microsoft taking over Yahoo, however, I really wanted to see some change. Yahoo tried working things out with Google, News Corp. and even AOL. It is pretty sad that nothing worked out. If you ask why I don’t mind, I believe that Yahoo has a bad management. Ever since Google went public, Yahoo’s stock has been losing the value and the company failed to report terrific quarters like Google’s. Even if you compare the last two quarters that Yahoo and Google had, Yahoo’s was ok – not too special sinking the stock even lower, while Google reported a really good quarter. One of the reasons is weak dollar. If you’ll take a look at the chart comparing Euros to Dollars over the past five years here http://finance.yahoo.com/q/bc?s=USDEUR=X&t=5y, you would figure out that Yahoo’s decline in stock price is even more then it should be since the dollar is getting weaker and weaker. Google keeps on saying thanks to weak dollar that stimulates more international sales, while Yahoo keep’s on saying “Oops”, the economy is so bad. That tells us something.
Yahoo is an older company and should have more experience in the area, yet, it lost its position as number one search engine to a new Google almost without a battle. They failed to realize how much money there is in search engine industry. Their advertisement program is much worse then adwords and adsense, etc. The only way I see their cash flow is from weakening dollar.
Now, the main question is Why Microsoft needs Yahoo? Their sites are old and most of the time it is easier to make a new one than fix the old one. Is it really all about search engine? I doubt. Search engine does play an important role, but Yahoo owns way more websites than Yahoo.com, such as one of the most popular image sharing sites flickr.com. The web is growing, the dollar is weakening, Yahoo did not do very well monetizing their content, and I believe if Microsoft will do it right, they will be able to get their money back within the first two years. Microsoft is doing a lot of new applications, such as image recognition software that uses flickr. Now they would have more control over that too. As for the search engine – there is a lot of money in the area. If Microsoft will manage to make a good transition and build a search engine that would combine the technologies of yahoo.com and live.com, I believe Microsoft can take over Google in being #1 search engine. As a matter of fact, Microsoft’s employees are pretty smart, for some reason they are just too dumb to figure out how to beat Google’s search algorithm and implement it on live.com. Instead, Microsoft is trying to build more search engines like msdewey.com based on live.com. Who knows, maybe Yahoo + Live = Better Search Results. If not, oh well, Microsoft can just keep Yahoo the way it is and still get the money back by doing a better job monetizing the content of #1 most visited website in the world (based on alexa.com). That’s where Google’s big chunk of change is coming from – their own website.
If Microsoft will build a new search engine that would give results as good as Google – there are many hidden things that Microsoft can do to become #1. Here are just some my thoughts:
1) Have you ever been annoyed by the runonce page that comes up right after you start IE? The page is pretty useless, and I bet that if Microsoft will integrate runonce with their new search page, that would add another 5% to their search engine share. If Microsoft would lunch this page every time when IE gets an update, and make an IE update every Tuesday, then their search engine share might jump up to 20%. :) Of course, this numbers came from the top of my head and nothing but my guesses.
2) IE start page is another good one. I believe this is the only reason why msn.com ranks number 5 on alexa.com for traffic results. If the new search engine will be the default IE startup page, it will get another boost.
3) Of course, lets not forget about Windows. Most revenue generating ad clicking users use it, right? I am sure smart guys at Microsoft can figure out how one can add up to another. They just need to assign the right person to manage the whole thing.
4) Implement the new search on their entire network. Microsoft owns many websites, or web portals I would say. Microsoft has many partners. Microsoft has much power!
They can do it if they try. They just never tried yet. They only “tried to try” probably by asking their data entry clerks and dish-washing department to develop live.com in a spare minute.
5) Google is not that great anyway. It became too commercial. It is like watching a movie with the commercial lines running all over the screen. There is definitely a way to make the results more relevant. Microsoft + Yahoo may be able to do it. I would happily switch if Microsoft would provide a better search engine and I believe that most of the tech world would too.
6) Why not share a penny? My job requires me to search for things all day long. If I would get paid a penny for each search that I did, I would probably be a millionaire. :) If Microsoft would have a revenue sharing program with the users, I am pretty sure that many will switch.
As I said, these are just some ideas, I am sure smart guys at Microsoft have even better ones, they just haven’t been yelled on enough yet.
Once again – it is for sure a good bet from Microsoft as if you would do some research and figure out how many web portals Yahoo owns, you would think that the bet is way too cheap, just like Yahoo CEO does. Search engine comes as a bonus.
Now, do you think that the shareholders will ruin Jerry Yang’s career and vote him down? I think they will, even though there is a lot of potential in the company. I believe that they are just tired of waiting till Yahoo does something major, and Microsoft for sure will be able to do SOMETHING – at least pay more for their shares.
P.S. Shares of Microsoft were down over 6% yesterday. I think it might be a good time to acquire a few.








