November 11, 2008

Lukewarm review of Yahoo mobile search

Stephen Shankland reviewed Yahoo’s mobile voice search, which works by taking voice input and returning results onscreen (in his case on his Blackberry Pearl). He found:

No big surprises there. 😀

April 7, 2008

Yahoo indeed seems to want an all cash deal

The Microsoft/Yahoo negotiation is in a very public phase right now. In its latest letter, the Yahoo board makes two references to “certainty,” in one case spelling out that this encompasses “certainty of value” and “certainty of closing.”

It’s hard to imagine what the former could mean other than “Please make an all-cash offer (or, better yet, go away).” But I previously noted, Microsoft can indeed afford to buy Yahoo entirely for cash.

The latter part is a reference to the antitrust boogeyman, obviously a non-trivial concern whenever Microsoft is involved.

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February 14, 2008

Yahoo wants to follow AOL into the dead pool

Yahoo CEO Jerry Yang has put out a shareholder letter in which he commits Yahoo to pursuing the strategies that have already devastated AOL. To wit:

This is exactly what AOL tried in the late 1990s, except that they also had the best dial-up connectivity in the world. I know; Linda and I were strategic consultants to AOL then.* And we told them that while the rest of their strategy was excellent, it would be to no avail unless their tools matched the quality of what people could get in the office or elsewhere online. Because if AOL’s technology didn’t catch and keep up, people would just laugh and go elsewhere. (Even my parents, who still use AOL mail, go outside AOL for their web surfing. AOL is getting very little revenue from them, and they’re about as captive as AOL users get.)

*Please note — AOL was a great client, but the people we dealt with are (for the most part) long gone, and our NDAs ran out years ago.

That’s brain-dead. Just consider how far technology has taken Google, how fast gaming technology advances, or how fickle internet users are about switching to the latest and greatest online services. What’s worse, Yahoo seems to mean it, given how many serious technology leader types are out on the street in connection with the recent layoffs.

Pretty much the only remaining hope for the Yahoo brand(s) and services is for the Microsoft acquisition to go through, and for Microsoft/Yahoo to unlock the deal’s huge potential synergies — which, while far from being certain, is at least realistically possible.

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February 10, 2008

Microsoft could EASILY pay $40/share for Yahoo, in cash

The Microsoft/Yahoo negotiations are underway. Mike Arrington and Henry Blodget are fretting about Microsoft’s stock price decline in reaction to the deal.

It’s all nonsense. According to Microsoft’s 10-K statements, they have $27 billion in cash and equivalents and have $14-17+ billion/year in cash flow from operations. Assume they have to pay $40/share for Yahoo’s 1.4 billion shares in an all-cash deal (meaning they have to borrow around $30 billion). Assume that building out data centers adds a couple of billion of dollars a years in new capital costs. They can still pay all the debt back in three years. It’s all a non-issue, if they think the acquisition is worth it.

So is it? I see tons of synergies, but I’ll confess to not having quantified them. I’m also more optimistic about post-merger execution than many observers are. I do think Microsoft will have to pay up to complete the deal.

And I think Henry Blodget is proposing a false dichotomy when he suggests Microsoft is wrongly favoring ad-supported online software over subscription online software. Ad-supported personal use and subscription-supported enterprise use can co-exist.

EDIT: I forgot about the FAST deal when I wrote this, which will cost a few billion dollars more when it closes. But there was enough slack in the calculations to cover it. Microsoft could indeed pay the debt off over 3-4 years, although it would surely arrange a somewhat longer term for flexibility.

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February 8, 2008

A game theorist’s view of Microsoft/Yahoo

Edit:  Microsoft/Yahoo could easily end up being an all-cash deal.

Larry Dignan encourages a game theoretic view of the Microsoft/Yahoo merger, following Trip Chowdhry. I actually have a Ph.D. in game theory, so I’ll bite. 🙂

In most negotiation games — including pretty much all in which money can change hands — there’s one outcome that makes the most sense for all concerned. They should agree to that outcome, and haggle about nothing except price.* In this case, the best outcome for Microsoft and Yahoo is a quick Microsoft takeover of Yahoo. That’s what I thought all along, due to a whole lot of Microsoft/Yahoo synergies. Michael Arrington reports, in confirmation, that there are no viable alternative bidders.

*A fancy way of saying that is “The feasible set has a continuous and effectively one-dimensional Pareto frontier.”

In such cases, the haggling over price depends a lot on each side’s “threat point” — i.e., their fallback position, and the (un)desirability of that fallback position for each side. Yahoo’s fallback position is probably one or more aggressive deals with other major internet players. Merely outsourcing its search business to Google would be stupid. Selling the search business to Google could fetch a wonderful price, because Google would be even more entrenched — but for exactly that reason, it would surely fail to pass antitrust muster. That’s why the Amazon idea that’s been floated is so crucial; a Yahoo/Amazon merger would actually be synergistic in its own way, and hence could command a price at least somewhat competitive with Microsoft’s offer.

As for Microsoft — despite successes in individual Internet areas, it has consistently failed to build a coherent Internet business. Yahoo has its own issues, obviously, but on the whole it’s maintained pretty decent Internet status even as its technological efforts have been consistently disappointing. If Microsoft doesn’t buy Yahoo, it probably needs to buy somebody else with a consistent record of Internet leadership, such as Amazon. That would also involve paying a large premium. And here’s a twist: If Amazon for any reason wants to sell to fellow Washingtonian Microsoft at a big premium, it’s best move may be to sabotage the Microsoft/Yahoo deal somehow.

One final note: If Yahoo outsources its search business to Google, the possibility of a Microsoft deal is gone forever. Microsoft can not be assured of winning a waiting game, the way Oracle outlasted Peoplesoft.

Bottom line: The Microsoft/Yahoo deal should and probably will happen, and Yahoo should and probably will be able to squeeze Microsoft for more money than has first been offered.

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February 5, 2008

Microsoft, Yahoo, and innovation

Bill Burnham argues that a Microsoft/Yahoo merger would drive down M&A prices. Marc Andreesen disagrees. His argument is essentially twofold:

  1. Microsoft and Yahoo were never more than a small part of the exit opportunity anyway.
  2. A merged Microsoft/Yahoo will be so slow-moving it will create more opportunities for competition than it destroys.

Andreesen certainly knows about slow-moving behemoths making wasted acquisitions; Netscape was acquired by two companies (AOL and Sun) that both dribbled away the parts they respectively acquired.* However, I think he and a lot of other observers are missing something this time — the Microsoft/Yahoo synergies are too large to ignore.

*The legalities of the merger were a lot more complicated than that, but in essence AOL got the “internet” piece of Netscape and Sun got the enterprise side.

Given the opportunity, here are some reasons I think integration would go a lot better than most people think: Read more

February 3, 2008

19 Microsoft/Yahoo synergies that could revolutionize the Internet

Many – perhaps most — commentators on Microsoft’s bid for Yahoo are thoroughly missing the point. The most interesting part of Microsoft’s bid for Yahoo isn’t the horse-race retrospective “How did they screw up so much as to need each other?” It’s not the incipient bidding war for Yahoo. And it’s certainly not the antitrust implications.

The Microsoft/Yahoo combination could revolutionize the Internet. I’m serious. The opportunities for huge synergies might just be enough to blast the merged companies out of their current uncreative, Innovator’s Dilemma funks. Search is open for radical transformation in user interface, universal search relevancy, Web/enterprise integration, and just about everything to do with advertising and monetization. Email stands to be utterly reinvented. Portals and business intelligence have only scratched the surface of their potential. And social networking is of course in its infancy.

Here’s an overview of where some synergies and opportunities for a combined Microsoft/Yahoo lie. Read more

February 1, 2008

Implications of Microsoft’s bid for Yahoo

As I write this, Microsoft has just announced an offer to acquire Yahoo. Early responses from the likes of Danny Sullivan, Henry Blodget, the Download Squad, TechCrunch, Raven SEO, Mashable, and others seem to boil down to:

I’ll try to be a bit more analytical than that, but this is still going to be quick. Assuming the deal goes through:

  1. Microsoft will recombine both parts of the old FAST/ Therefore, Microsoft will be able to use the same technology for web and enterprise search, to the extent that such commonality makes sense.
  2. I’d expect Microsoft to try to differentiate its technology via faceted/structured search. That’s a FAST strength.
  3. The old FAST search-as-BI dream might become pretty appealing to Microsoft/Yahoo.
  4. In a non-search point, Microsoft is strong in games and Yahoo is strong in fantasy sports. Look for some synergies.
  5. There sure would be a whole lot of non-Windows technology inside Microsoft. 🙂

Basically, Microsoft is a company that’s a lot more sophisticated in its thinking about user interfaces and experiences than Yahoo is. That’s where the really interesting competitive innovation would be most likely to occur.

January 8, 2008

Microsoft is buying FAST; what about FAST’s contractual prohibition?

As you’ve probably heard by now, Microsoft is buying enterprise search vendor FAST (Fast Search & Transfer). FAST wasn’t always focused on enterprise search; in fact, FAST built And when FAST sold to Inktomi, it agreed not to reenter the web search business itself. Inktomi was subsequently bought by Yahoo, a company not much inclined to do Microsoft any favors in the web search arena.

I look forward to hearing why this won’t be a problem.

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