Saturday, February 02, 2008

Microsoft bid $45 billion for Yahoo!

A lot of things have already been said for the news of the day: Microfost is aiming to takeover Yahoo! I just wanted to analyze what is going on and give you my opinion about it.

Yesterday already, as Yahoo's share price was going down had decided to lay off 1 600 employees. We don't have to forget however that Yahoo! is still a profitable company, able to have strong merging on an increasing market. However, one of the problem that Yahoo! has is that the market share price was too high compared to the actual value of the company. The market share is based upon expected revenues in the future, but the fact is that we are on the edge of a stabilization of the market, with a slower pace of grow. That means that investor have noticed that Yahoo is closed to its maximum grow.

You can also see that as Google's market shares are also going down. The market is still profitable, as the companies are on a fast growing market of the online advertising. However, this is the time for these highly speculative shares to get down.

But also, what we can see is that this market of search engine is dominated by Google, that hold 90% of the market. Therefore, in every market which is dominated by a company, the competitors merge and restructure themselves in order to build a company able to compete. That is why Microsoft is willing to get Yahoo.

Microsoft buys because he can't do any other way
According to Philippe Colombel of Partch International, an investment company specialized in VCs and start-ups, Microsoft had to buy Yahoo. Microsoft was not competitive and it could not let Google take the monopoly of the market so easily, as online market is one of the main strategic market Microsoft wanted to develop on.

Another main reason is Yahoo! technology Sometimes, companies by others because they can't create or develop what they don't have. For example, the giant France Telecom bought Orange, a small British telecom company, because of its new management skills and its strong brand.
That is the same thing I think with Yahoo. I think that Yahoo has a way better technology than Microsoft. And because of it, Microsoft would like to incorporate its search engine skills to its Live environment.

The consequences
There are two main options. The first one is to kill Yahoo! and take the Yahoo technology to merge it into the Microsoft live product. That is already what happened sort of with hotmail, which is now totally incorporated in the Microsoft world.

But the fact is that Yahoo! owns still a strong brand and a legitimity on this market. The second option would be to keep yahoo, and to have both in the market. Sort of what has Procter and Gamble with Pumpers and Luv on the diapers market. That will allow the company to have two products, and then generate more tractions.

What is for sure, it is that a lot of people on both sides might lose their jobs...

And you, what do you think about it?

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