Yes you woke up this morning and you can read all of the reports and blog posts on Microsoft removing its bid for Yahoo. Me? I still think it will get done, but based on my own personal observations, I think Microsoft should take a long hard look at why they want Yahoo so badly. I've never been in mergers or acquisitions and I'm sure the folks at Microsoft who are/were running the deal are highly paid and very experienced individuals, but here's why I believe Microsoft should be happy about the deal breaking up.
- I don't believe the online advertising world is as simple as buy up your competition and Yahoo's ad revenue become Microsoft's ad revenue. All buyers today know about both companies and make decisions based on audience, content, and price. The audiences are different and buyers know this. How much of Yahoo's ad revenue Microsoft would have kept was probably the biggest factor in Microsoft's bid.
- This isn't like TV in the 70s where there are only a few channels. Today's online advertising marketplace is very splintered with social networking, blogs, portals, and other sites vying for your time. Sure a few publishers dominate the top of the pyramid, but there are large audience duplication rates and experience media buyers know this. Simply buying one of the top 3 properties doesn't mean you are buying up a specific audience. However, this strategy does work from a search perspective and how much of that revenue Microsoft would keep was probably factor #2 in the bid.
- Yahoo, AOL, Microsoft, and Google all have a different look and feel and people choose these sites to frequent for various reasons. Google pretty much makes a living indexing and aggregating the information for you in a simple fashion. The other sites make a living arranging the information, cutting deals with content generators, and sometimes making the content themselves. People go to different sites for whatever their reasons are and Microsoft probably would have kept some of that unique Yahoo traffic, but how long would have Microsoft kept the Yahoo properties and would they continue over the long haul to invest in it? My guess is - not very long.
- So after looking at advertisers, audiences, and content what assets do you have left? Employees and that is where this deal probably was meant to never get closed. I have friends at both companies and while I'm sure quite a number of them could work in either organization for the most part there is huge culture clash. Just visit the NYC offices of Google, Yahoo, and MSN and you'll see what I mean. Google looks like a huge frat house with gourmet food, Yahoo like a college dorm, and Microsoft, well it looks like a Government office building. The people who made Yahoo an internet destination and are making changes to their platform are people that I just don't see being willing acquisition pawns. And, without Yahoo's staff who helped create the content and look and feel, the Yahoo brand would have just whithered away which would have killed the audience and advertising revenues. When I don't know but you get the idea.
Point #4 is probably the biggest reason why Microsoft should be happy the deal didn't get done. The rule of thumb in acquisitions is that the vast majority of employees from the acquired company don't stay. However, unlike a lot of other acquisitions (like E*Trade's acquisition of Harrisdirect) it is/was Yahoo's staff that built their presence and continues to make changes to their platform to keep it fresh. Unlike other businesses, in the internet if you don't continue to invest in your product people will leave and find the newest site (Overture losing out to Google). The Yahoos who made/make those changes are probably people who wouldn't have stayed past a retention bonus that Microsoft was nervous to pay out on.