YaSoft! or MicroHoo! … Yours for Just $44.6Bn (or a 62% premium)
Microsoft’s $44.6Bn bid for Yahoo! may turn out to be one of the best (and biggest) mergers in many years. (We suggested in May that Microsoft was interested in acquiring Yahoo!)
Neither company has been at the top of its game in internet advertising in recent years. The reasons differ and are complimentary (in merger-speak terms!).
Microsoft is having enormous difficulty making any headway growing its market share in online advertising. Yahoo! seems to be able to generate revenue, but has trouble with operations and so it’s not a strong profit engine.
Yahoo! is better at marketing than Microsoft, who remains a software engineering and product-centric company.
Interestingly, Yahoo! has produced surprisingly good search and advertising matching algorithms in the last 12 months. From a results viewpoint it is arguably better than Google right now. Technically, Yahoo! has nothing to be ashamed of. This is a very good thing if you are about to merge with Microsoft!
What Yahoo! does much, much better than Microsoft is develop relationships with consumers.
Most of Microsoft’s search traffic comes from Microsoft “tricking” users to use it’s search engine by having this the default setting in Windows and its Explorer browser. While the alternative MSDewey.com site is all very entertaining, I doubt anyone actually uses it regularly!
Yahoo!, by contrast, has a loyal and very large user base of consumers who use the Yahoo! portal as their home page - and millions of other who do go to Yahoo! for search. It’s just that Yahoo! has not been very good at generating profits from this.
Yahoo! does not deliver a good customer experience to its advertisers, however. It seems to have developed processes and a culture that are not advertiser-friendly. This is one area which would be an obvious point where changes would be made and great synergies could be gained. Microsoft does do process quite well, even if it does not very savvy at dealing with consumers.
At this point, if the merger does go ahead, Microsoft would be wise to make this a genuine merger. The value is in the Yahoo! brand and consumer franchise and their search and advertising matching algorithms (not their organisation and processes).
Microsoft should retain the Yahoo! consumer experience.
On the advertising side (which is the one which actually generates revenue, rather than eye-balls) the Yahoo! Search Marketing identity is unimportant. Microsoft would do well to give advertisers a much better experience than they currently get with Yahoo! Search Marketing.
In short, post merger the consumer proposition should be more YaSoft! than MicroHoo!