Microsoft Can Buy Yahoo, But They Can't Afford Yahoo - InformationWeek
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2/1/2008
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Dave Methvin
Dave Methvin
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Microsoft Can Buy Yahoo, But They Can't Afford Yahoo

Microsoft has decided that it's time to get serious about this Internet stuff, so their bold move is to -- buy Yahoo? I don't get it. If I were a Yahoo stockholder I might play hard to get for a while, but nearly all of them will want this deal to happen because it's probably the most profitable end for them. For Microsoft, not so much.

Microsoft has decided that it's time to get serious about this Internet stuff, so their bold move is to -- buy Yahoo? I don't get it. If I were a Yahoo stockholder I might play hard to get for a while, but nearly all of them will want this deal to happen because it's probably the most profitable end for them. For Microsoft, not so much.Yahoo's been adrift for a while now, not really putting up much of a fight in any of the segments where they compete. Without the Microsoft bid, their stock would probably continue to drop. The search business is still there and they are a major player, but they don't seem to have any new ideas that leverage it. My company's first-hand experience with Yahoo's Web ad network is that it has more fraud, a lower sales ratio, and lower-quality sites than Google. Microsoft's not buying top-tier product here.

Technology-wise, Yahoo has have some really nice stuff like Yahoo User Interface (YUI). Essentially that's plumbing for Yahoo's own sites; it can't be monetized the way Amazon has done with Web Services, for example. Given Microsoft's appetite for home-grown technologies like its own Silverlight, it's not clear the YUI team will even survive the transition.

It often makes a lot of sense for a big, cash-rich giant to buy a smaller company that has either expertise or technology that meshes with or complements the big company. This, of course, is not a case of a big fish swallowing a little fish. Microsoft will have to eat Yahoo by hacking it into small pieces, picking off the tidbits that suit its taste, and throwing away or perhaps selling the rest. There will be a lot of waste -- time and money -- in that process.

As Microsoft picks over the bones of Yahoo, it will no doubt find that the parts it coveted so much (like the ad platform) are not quite as good as they thought. In the meantime, Google will be moving ahead with its plans, undistracted by the endless meetings and politics of a corporate merger. Microsoft can't afford that.

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