Ya-Micro-hoo-soft?

February 1, 2008 – 2:30 pm

This morning Microsoft made a bid of $45 billion to purchase Yahoo! by way of a stock buyout. The software juggernaut has never had a presence in the Internet search market, and just so happens to have some cash lying around. If this is the real deal Holyfield, it would be one of the largest mergers/acquisitions in recent memory; akin to LeBron James being traded to the Lakers for Luke Walton and a draft pick. You just don’t see deals of this magnitude very often. What does this potential blockbuster mean for the big picture?

Deal Details

The per-share offer from Gates and Co. comes in at $31, a rather healthy 62% premium over Yahoo’s current price. This means that Microsoft values the company higher than investors currently do. If you think about it, this makes sense; Microsoft can take their tremendous resource pool to improve, enhance, and utilize all that Yahoo! has to offer. Here’s an analogy: let’s say if I can shoot two-under par at Augusta National Golf Course, I’ll get a $1 million prize. The catch is, I can either use equipment from the year 1900, or pay $50,000 out of my own pocket to use modern-day equipment. As much as I’d like it to, the modern day equipment is not going to make it more likely that I’ll win the prize. Now, another contestant just happens to be Tiger Woods. While he’s probably good enough to achieve the task using the antique gear, paying the small amount (relative to the payout) all but assures him of winning the money. That modern equipment is worth more to him that it is to me, much as Yahoo! and their infrastructure is worth more to Microsoft than to your average business.

The Redmond-based software giant is also planning for the long-term. Their primary weakness is precisely what their strongest competition does best: Google’s Internet search and advertising. Yahoo’s assets will enable The Soft to cover their bases and provide a well-rounded front in the future.

Google Getting Anxious?

While Microsoft has had trouble penetrating search and advertising market share, Google has been relatively effective at gaining users in some of Microsoft’s key markets. Google Apps is basically a free, web-based version of Office that’s simple to use. However, Google’s cash cow is their online advertising platforms. If a company with the resources of Microsoft and the infrastructure of Yahoo! starts to creep on their territory, they will have to get a little worried.

Long-Term Ramifications

As an aspiring dot com mogul, I’m very excited about the long-term prospects of this potential deal. Microhoo (or whatever you want to call them) will finally provide some competition to the dynasty of Internet advertising. (Think of it this way: if the Internet ad business was the NFL, Google has won the last four Super Bowls without breaking a sweat.) Business 101 says that competition in the marketplace is good for the consumer, forcing mega-corporations to make better products to remain viable. Who knows what the new Microsoft will cook up to battle Google? Whatever it is, this new presence will certainly provide for more options for the Average Joes like you and me. And that’s always a good thing.

Tags: microsoft, they could be called yacrosoft, tiger could probably shoot 70 blindfolded, yahoo!