Microsoft just took Yahoo out back and shot it

I wondered about this deal Microhoo a while back when Microsoft (NASDAQ:MSFT) first announced their intention to acquire Yahoo (NASDAQ:YHOO). I thought it was an absurd thing to do for Microsoft. Now, rumors are starting to circulate that Microsoft might pull out. And the other interested parties have left the building.

If this happens, Yahoo is pretty much toast. Most of their top talent has already bolted when this was first floated, and they weren’t the most innovative company in the world to begin with. The only thing they’ve done recently that I’ve really liked is Yahoo Pipes (which is one of those geeky tech toys that I have NO idea how they would generate revenue from). I’ve used Yahoo Messenger for instant messaging for years, but aside from that I really don’t care about the company. They are, for the most part, irrelevant in this day and age. On top of that, their best talent left, management bungled the potential acquisition, morale is non-existant, and it generally sounds like a depressing place to be right now.

The ONLY thing they have going for them is that they have a lot of home page eyeballs. Their My Yahoo! site is pretty popular, and yahoo.com still gets an insane amount of traffic. They’re basically a content producer at this point, and Microsoft wants to own that space badly. And Microsoft has now managed to severely cripple its biggest competitor in this market. Now, I obviously don’t know if this was the plan all along or not, but I do know that blowing billions of dollars on Yahoo right now would be an absurd waste of money in the current economic environment. They will never make that money back on the deal if it happens. If Microsoft was really willing to give up that kind of money they will be extraordinarily fortunate if the deal DOES fall thru, because they were just saved from their own stupidity.

If Microsoft’s first offer was serious, Jerry Yang is playing some dangerous poker here. If I were a shareholder I would seriously consider slapping him upside the head and asking him what he was thinking. In my opinion he looked a gift horse in the mouth. Stared it down, in fact.

Was thinking about buying some YHOO puts for just this event the other day, now it looks like I may be too late. We’ll see what happens over the weekend, if the price opens at a decent level I may just have to play in this one.

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Jason K.

As a major user (not a shareholder) of the Yahoo! Network, I prefer the company remain independent. I don't have any confidence that Microsoft can acquire Yahoo! without destroying it in the process, which, incidentally, would undermine the very goal Microsoft set out to achieve by the acquisition. I realize the likelihood of Yahoo! remaining a viable independent company has significantly lessened due to such factors as the exodus of employee talent. If I were Jerry Lang and company, I would be trying to persuade Steve Jobs and the board of Apple to form a partnership/alliance with Yahoo! Such a combination would allow Apple to diversify and increase its prospects for long-term growth by giving it major entry into the on-line service industry that is expected to produce enormous profit from advertising. Apple will not be able to rely on iPods and iPhones to sustain itself forever; just as Yahoo! can't rely on its role as content provider for unending success; just as Microsoft can't sustain itself on PC software forever. In an ideal world, Apple shareholders would have the company continue its prolific growth in earnings, now that they've experienced the tremendous boost brought about by the iPod and iPhone. At the very least, shareholders will expect Apple to maintain its current profit level. Neither situation will occur once other companies have managed to saturate the market with enough successful knock-offs of the iPod and iPhone — unless the company diversifies beyond its hardware lines. Apple would inherit a universe of on-line channels through which it could expand its marketing campaigns for existing and new products. The iTunes service would be a perfect addition to Yahoo!'s Network. Yahoo! could eliminate its Yahoo! Music service, which receives an extremely small fraction of on-line music purchases. Combining the corporate cultures of Apple and Yahoo! would be a cakewalk compared to combining the cultures of Microsoft and Yahoo! Both companies also score a point for being skilled at "branding" their on-line presence by using creativity to develop style that engages consumers. Those two things — creativity and style — are practically antonyms for Microsoft. By partnering, Yahoo! and Apple could, over time, gain a position that's equally competitive with Google and Microsoft. And that could only be good for shareholders and consumers. For more than a decade Apple seemed to "tread water" in the technological marketplace. It may be premature to count Yahoo! "out-of-the-game" after a couple lackluster years. If Apple and Yahoo! want to survive the competition through the Technological Revolution — which has only just begun — they should consider a complementary union. I believe it would have a far greater chance of succeeding than a merger between Microsoft and Yahoo! And I suspect the majority of Yahoo! users could comfortably accept — maybe even welcome — the creation of "Yapple!"