Assessing The Microsoft/Yahoo Aftershock
At the end of this day we’re left with a nail-biter. Chances are we’ll know who won Super Bowl LXII, and who will be the Presidential nominees* before we know if Yahoo accepts Microsoft’s dizzying offer. But that’s all it is: an offer.
In fact, Yahoo might say no. According to one source, at least, Microsoft made the offer quietly after Yahoo’s earnings report came out earlier this week. And Yahoo said no then. Well, CEO Jerry Yang said no. When Lancelot – I mean Microsoft – didn’t receive an answer, he went public with the offer, and Yahoo execs start scrambling.
Just so it’s clear: Microsoft goes public so everybody hears about it, buzzes about it, dreams about it. More importantly, disgruntled Yahoo shareholders hear about it, see it as their golden ticket. Yang and company have little choice but to accept**. The truth is Microsoft has little to offer Yahoo but money – a way out of a hole in exchange for all that beautiful Web presence.
Calling Microsoft Lancelot is too nice. How about Gaston?
So, in addition to a nail-biter and a kind of please-be-my-girlfriend-or-else offer, we’re also left with the tech-world equivalent of wondering how good looking Brad and Angelina’s baby is going to be. Wait, I have more metaphors to mix. It’s like devising a fantasy football team, too.
The point is, after Microsoft’s embarrassing public display of affection, everybody may be disappointed. But that’s not going to keep us from fantasizing about what that magical union really means – you know, in world where magical unions and perfect teams exist.
So here goes.
It’s not just about search
Search is only a part of it, a third of it maybe, at most, depending on if you’re getting your numbers from Hitwise or Comscore. Yahoo gave up a long time ago on catching or beating Google at search. It’s a good thing, too, because they’d look just as silly as Microsoft looks, flexing all that muscle, throwing all that money around, and boasting all the time just capture 7% of the market and falling. That "flagship" engine they called Live Search – the one developed with the help of Chinese researchers with mad algorithmic skills – brings in about 1.6% of search.
Adding Yahoo’s 20% helps Microsoft’s search share, but doesn’t come close to shaving off Google’s dominant two-thirds. But putting their heads and assets together helps in the display advertising segment, and with any luck eventually leads to taking some of that search advertising money – of which Google controls 77% – away from Google via an expansive ad network.
Maybe there’ll be some search "synergy" going on, but neither have been able to knock off Google so far, and there’s no reason for that to change. A quarter or a third of the search market, though, is a nice consolation prize.
What will be interesting is watching Microsoft decide what to do with all those search brands. It’ll have MSN, Live, and Yahoo. It’d be foolish to get rid of the Yahoo brand or to juggle three of them. One or two have to go and I think you know which. And if one of them goes, then a portal could go with it.
That’s perhaps the biggest challenge: integrating the overlapping brands. MSN, Yahoo, Auto, Finance, Games, Maps, Messengers, Widgets, Mobile, Music…Right Media, aQuantive…the list goes on and on to the point you’ve got an administrative mess. For every overlapping brand, they’ll have to decide to keep, throw out, or mash together.
Now the good news
$44 billion buys Microsoft a lot of Web dominance. A lot. Here’s what they get in terms of market share, according to Hitwise (some numbers rounded):
- 15.6% combined share of Internet visits (twice Google’s)
- 28% of search (32% if you’re asking Comscore)
- 87% of portal front pages
- 83% of web-based email services (compared to Gmail’s 5.5%)
- 12% of online news and media
- 39% of business information content
- Yahoo adds 35% of the Maps/Local sector (to compete with Google’s 50%)
- 10% of online shopping directories
- Flickr gives Microsoft 12% of the photo market
- Yacrosoft/Microhoo, whatever you call it, will reach 600 million pairs of eyeballs.
- Together they will handle 3.1 billion searches per month (Google, 5.6 billion)
- Combined $65 billion in revenue (Google, $16.6 billion)
- Combined $50.3 billion in gross profits, $17.6 billion net (Google, $9.9 billion, $4.2 billion)
- Combined 90,000 employees (Google, 16,805)
That is, if Yahoo says yes. And if so, it will be one exciting year to watch. Either way, we’re still just a few steps away from the fabled GEMAYA (Google/eBay/Microsoft/Amazon/Yahoo/AOL superconglomerate).
*If we’re taking bets: Patriots by 14; Clinton/Obama vs. McCain/Thompson; Romney’s toast, so is Huckabee, so are the Giants
*Although, if you ask me, selling out to Mr. Softy is letting Yang off the hook and putting Ballmer on it, who’s used to the hook. Taking over Semel’s mess is no picnic, and the ants are everywhere lately.