Monday, May 19, 2008

Microsoft and Yahoo now making some sense

The so-called "renewed" talks between Microsoft and Yahoo are a lot more sensible. Rather than pursuing a full-blown takeover, Microsoft is seeking some sort of arrangement that will provide Microsoft with access to Yahoo's customer base to display ads for Microsoft advertising customers. The terms and details are anybody's guess. Some sort of "partnership" between the two companies makes a lot more sense than the large-scale disruption of a full takeover. Although Microsoft says that it reserves the right to pursue a full takeover in the future, it also stated that in the near-term it does not intend to pursue a takeover. Overall, this announcement is very good news, especially for Microsoft shareholders, even if mindless traders initially gave a negative knee-jerk reaction.

From the chatter about a proposed or hypothetical deal, it sounds somewhat similar to the proposed deal between Yahoo and Google, but the question then becomes how Microsoft would make its proposal more attractive than that of Google, since Google can charge a premium for ads. Maybe... maybe Microsoft would be willing to shift some or all of its online content to Yahoo content and then split the resulting ad revenue with Yahoo. Microsoft might also "offer" to host content on its growing "cloud" infrastructure, an investment whose expense is straining Yahoo's limited finances but is a key investment for Microsoft and makes more sense at the scale envisioned by Microsoft. In other words, Yahoo could leverage off of Microsoft's data center investments. That is speculation on my part, but it would make sense and allow Yahoo to focus on content and services while Microsoft focuses on software and infrastructure and a larger-scale advertising business.

See: Microsoft Issues Statement Regarding Yahoo! - May 18, 2008 - Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business:

"In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business.  Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo!  Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties. 

"There of course can be no assurance that any transaction will result from these discussions."

-- Jack Krupansky

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