Marketing Ninja

Well now that I have that damn DNS problem under control I can go ahead and write up my smug, self-congratulatory post on how well my 8  Bold Predictions for 2008 are turning out. Microsoft’s acquisition of Yahoo! doesn’t sound so insane now, does it?

One kind reader was kind enough to Digg my 8 Bold Predictions Post under the following headline: AjaxNinja predicted Microsoft’s offer for Yahoo 1 month ago

On Microsoft’s Move to Acquire Yahoo!

While I could go on about my great batting average with my predictions, I’d rather talk about the major news item of Microsoft’s move to acquire Yahoo! in a hostile take over by purchasing all Yahoo! stock options at a $31 per-share premium.

Most of the big-name bloggers aren’t adding much value to the blogosphere in this particular conversation; most of what I’ve read today consists of either total hysteria on the behalf of anti-Microsoft lunatics, near-baseless speculation that someone other than Microsoft will buy out Yahoo, and some stuff that is just way, way out there.

Let me add something meaningful to this conversation.

No One is Going to Outbid Microsoft

There are a lot of bloggers out there who sound like they hope that Google or a private equity firm will come to Yahoo’s rescue and save it from the fate of having its shareholders be made filthy rich by selling off their shares at a price that Yahoo! could never achieve on its own.

Sorry to disappoint those guys, but it’s not going to happen. Here’s why:

• The S.E.C would block Google from acquiring Yahoo!; even if Google had the capital it wouldn’t be able to as this move would be considered monopolistic on Google’s behalf. Google already has a 58.4% U.S. search engine market share, while Microsoft + Yahoo! would have a 32.7% market share combined.
• Google doesn’t have the capital to match Microsoft’s $44.6 billion offer. Microsoft doesn’t need to rely solely on debt to finance their acquisition: they have $22 billion in cash assets and are financing at least half of the acquisition with Microsoft stock. In addition Microsoft’s projected profits are over four times what Google earns, and Google is still tangled up in Europe with its $3.2 billion acquisition of DoubleClick, Google’s largest acquisition to date.
• Google doesn’t have a magic money factory behind the employee parking complex at Mountain View; they simply can’t finance a takeover at a higher premium than Microsoft. (I just wanted to make sure that everyone noticed this particular piece of snarky commentary)
• I don’t think any of the private equity firms that were interesting in bidding on Yahoo! has the gumption or the assets to match Microsoft’s high premium on Yahoo! stock.

Microsoft Will Pull the Acquisition Off

I don’t know where a lot of bloggers get their ideas, but when I want quality financial analysts, I turn to people who actually know something about the financial industry, not a bunch of pissed off anonymous Flickr users.

The stakes have a reached a point where the conversation has moved beyond the tech industry and into the financial industry, and the financial industry is saying that things are looking pretty good for Microsoft.

Microsoft is Going to Throw A lot of Yahoo!’s Code Out the Window

There are a lot of people out there wondering about how Microsoft is going to integrate all of Yahoo’s services into the Microsoft Network (MSN;) let me give you a hint: Microsoft isn’t going to integrate all of Yahoo’s products and services into MSN.

Some of Yahoo’s services will be left, intact, on their current hosts for years, simply because the cost of migrating those services to a Windows architecture will be too great in the initial wake of the takeover. It will take half a decade to port all of those technologies over to Windows Servers.

Some of Yahoo’s services will be dissolved and discontinued. Say "Goodbye" to Brickhouse.

Some of Yahoo’s services will be immediately integrated into MSN.

Point by point, here’s what I think might happen in the months after Microsoft’s takeover:

• Yahoo’s Publishing Network and Paid Search are scrapped and all publishers/advertisters are moved onto Microsoft’s new search platform.
• Microsoft rebrands Windows Live Search with the Yahoo! brand search engine. The Yahoo! brand is simply better than Windows Live, and that’s the primary reason why this acquisition is being considered in the first place. Well, branding and market share.
• Yahoo! Accounts are integrated with Microsoft’s Windows Live ID. Among other implications, this means that Yahoo! Mail subscribers may see their service ported over to Hotmail, even though users will still keep their @yahoo.com  email addresses for years to come.
• Del.icio.us and Flickr will be left, intact, at least for a while; these services are harder to integrate into MSN because they are anchored with powerful communities that might be actively resistant to change. Microsoft will handle the networked services a bit more carefully than some of the other parts of Yahoo!.

The Fate of Yahoo’s Search Engine: Ever Seen Old Yeller?

The Yahoo! brand will live on, and I suspect that Microsoft will use the Yahoo! brand to dress up Windows Live Search. But Yahoo’s search engine itself? That’s going to be the saddest part for the anti-Microsoft cheer leaders.

The Yahoo! search engine, which we have known and loved for over a decade, will be unceremoniously taken out to the backyard and shot like Old Yeller. Microsoft’s technology is better at satisfying queries and there is no point in holding onto a technology that is expensive to maintain, difficult to port, and worst of all, cannibalizes Live Search.

The dismemberment of the Yahoo! search engine will also help expedite the process of getting advertisers to switch from the Yahoo! Publishers Network to Microsoft’s equivalent service.

In theory this move might create a lot of outrage; my guess is that most Yahoo! users won’t even notice when the switch occurs, well, they might notice the quality of their search results improve, but that’d be about it. Even if they did notice I doubt most of them would care. Don’t let the vocal minority convince you otherwise.

The Implications for Google

For once, Google looks like the one who might be in trouble in online search, well, until the rest of the blogosphere realizes that Google still has the majority of online search by a wide margin. In all likelihood, Google saw this coming and it’s not going to affect Google’s bottom line in the short term.

In the long term however, Microsoft might be able to leverage itself into a larger market share, and by that I mean larger than the sum of Yahoo! and Microsoft’s current market share, through clever utilization of the Yahoo! brand. Microsoft’s most recent branding efforts with the Live! moniker have been confusing and mismanaged; the Yahoo! brand name is just the cure that Windows Live Search needs.

I’ll have more analysis up during the week; I’ve already spent an inordinate amount of time writing this stuff on a Friday night.

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