Microsoft today announced that it has made a proposal to the Yahoo Board of Directors to acquire all the outstanding shares of Yahoo common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion. Yahoo has replied it will “carefully and promptly” study Microsoft’s bid. According to news services and experts the emergence of Google as dotcom leader is forcing Microsoft to go for such a big deal. At present Google controls 60 % of the U.S. search market, and has been widening its lead, despite efforts by both Yahoo and Microsoft. After combining, Microsoft and Yahoo would have a 33 percent share of the U.S. search market. Google sold $16.4 billion in ads in 2007, or more than 40% of worldwide online ad sales, while combined, Yahoo and Microsoft’s market share is less than 25%.Microsoft is under massive pressure to expand its Internet business to to beat rivals such as Google, and this deal shows how desperate they are to lead the internet business. Microsoft needs a strong footprint in the online space not just to grab advertising revenue, but as a way to deliver its core software offerings in the future. Google has launched free online alternatives to Microsoft’s spreadsheet and word processing software in recent months. It may decrease the monopoly of Microsoft in software market.
In my opinion, Yahoo is completely different from Microsoft in many respects. Yahoo is a 12-years old internet company, with a dot com culture. Yahoo’s business model more resembles to an advertising company than a software company. Unlike Yahoo, Microsoft’s focus has long been software. Its primary businesses were never part of the dot com world. Yahoo and MSN run on different platforms so their technical integration is very difficult. Yahoo uses php whereas msn is written in asp.
Yahoo is a big open source user. It has also contributed the open source community with its new technologies and infrastructure. A purchase by Microsoft will certainly reduce the number and amount of Yahoo’s contribution to the open source technologies. A consolidation of the Microsoft and Yahoo networks could shift a massive amount of infrastructure from open source technologies to Microsoft platforms.Microsoft said that “eliminating redundant infrastructure and duplicative operating costs will improve the financial performance of the combined entity.” Yahoo has been a major player in several open source projects. So this merger will be a big concern for open source community. Now after all these, all eyes are on Yahoo Board of Directors.