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One More Thought on Yahoo's Rebuff

chrisshipley — Mon, 11 Feb 2008 22:50:19 +0000

So much has already been said and speculated about Yahoo!’s rejection of Microsoft’s $44.6 billion offer that it would be screaming in the echo chamber to add my analysis and prognostications about the offer and its rebuff. Except I can’t help making one (hopefully) original observation: This episode may be the best thing to happen to Yahoo! and its employees in a very long time.

When the proposed deal was announced 11 days ago, I wrote – assuming Yahoo! to be a willing recipient of the offer – that getting the deal past regulators would be a challenge and one that could demoralize an already struggling Yahoo!

Now, Yahoo!’s decision to reject the offer could have the opposite affect on the company and it’s employees.

From the press release issued by Yahoo this morning:

After careful evaluation, the Board believes that Microsoft’s proposal substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments.

Roughly translated: “Microsoft is out of its friggin’ mind if it thinks for a minute we’re some kind of cheap date.”

And therein lies the motivation. Nothing energizes an organization and galvanizes employees quite like righteous indignation. Now, Yahoo! has something to prove, damn it!

Sure, Yahoo! left the door ajar for counter offers and other “strategic options,” but the Microsoft bid – and its rejection – might be the best thing to happen to Yahoo! in a very long time.

Microsoft Courts Danger

chrisshipley — Mon, 11 Feb 2008 22:21:52 +0000

Even as Yahoo! rebuffed Microsoft’s proposal this morning, Microsoft announced this morning that it would acquire mobile software and services provider Danger Inc. (and in the process nix Danger’s plans to go public).

In the press release, Microsoft said the “acquisition will align Danger’s nearly 10 years of expertise in the mobile consumer space with Microsoft’s vision to provide innovative andcompelling mobile experiences to a growing base of customers.”

We first met Danger in early 2000 when my colleague Jim Forbes and I were putting together the DEMOmobile events. Danger introduced the Sidekick at DEMOmobile 2001. Meeting the company in their scrappy offices on University Ave., in Palo Alto, it was clear

to us that the future value of Danger wasn’t the Sidekick device or even the operating environment; it’s the applications and services that the device connects to that matter most. Microsoft seems to get that, too.

So concerns voiced in a c|net post about how Microsoft will reconcile the incompatible operating systems seem moot to us. Microsoft Windows Mobile has focused on the device, to the neglect of the services the device connects with. Danger provides an end-to-end infrastructure to deliver data and Internet services to consumers. Whether Microsoft adopts Danger’s OS or kills it is of little consequence. It’s the service infrastructure that matters and in acquiring Danger, Microsoft is acquiring the architecture, IP, and experienced engineers to extend Windows Mobile – or for that matter the Xbox and other device-centric operating platforms — from the device to the service layer.

We hope Microsoft also recognizes the value of Danger’s consumer-smart marketing organization. Danger has been successful in creating a hip brand that appeals to the iPod generation, a substantial market segment that Microsoft can’t seem to crack.

Microsoft + Yahoo: Can the Deal Get Done?

chrisshipley — Fri, 01 Feb 2008 14:23:39 +0000

I woke this morning to the news that Microsoft has tendered a $44.6 billion ($31/share) offer to buy Yahoo in a cash and stock deal. (And here I thought I was getting up early to pack for vacation!).

The acquisition has been rumored and speculated on for a year or more, and even in the dawns early light there’s plenty of commentary on whether the deal should or should not happen, whether it makes sense, what the combined company might look like, what Microsoft ought to do with the Yahoo asset.

When rumors of a possible merger circulated last May, Om Malik called a Microsoft-Yahoo merger a “bad idea.” He wrote:

Marrying a company with Internet DNA (Yahoo) with another who can’t take a step forward without turning its neck twice (looking back at the PC) is not that easy. Will this deal become the 21st century version of AOL-Time Warner merger, and a high-water mark for the current boom?

One-time Wall Street wonder-analyst Henry Blodget called a potential merger a “smart strategic move” but advised Microsoft to create a new company Internet company in the process.

Would it be a smart strategic move for Microsoft and Yahoo to combine forces? Absolutely. Is the best way to do this to have Microsoft suck Yahoo into the massive Windows/Office empire? Absolutely not. If Microsoft buys Yahoo, Microsoft should immediately spin the Yahoo-MSN business out as a separate company. If it doesn’t, both Yahoo and MSN will die

Now that the deal has gone from rumor to announcement, there’ll be plenty of jockeying around these two, and a myriad of other, opinions. I’ll leave that speculation to folks who are far better arm-chair quarterbacks than I. But what I will say is this:

Not so fast.

I’ve seen this play before and while (for the record) I think this is a brilliant move on the part of both companies, I question whether it’s a deal that can get done. Remember the mid-90s when Microsoft tried to buy Intuit in a play to own the small business market? Well, I do. After the offer comes the regulators and after that six months of wrangling before both companies had to agree that they couldn’t come to final terms that would also suit the suits in Washington.

The detritus of that aborted merger took years to clean up. Intuit employees, once proud Davids in a battle with Goliath – a battle in the finance software market it looked like it was winning — had first reset its thinking that Goliath may have won after all, only to find the battle would wage on after all. It took considerable time for Intuit’s people to get their heads back in the game and I would argue the company was never quite as competitively hungry in the personal finance software market after that.

And, of course, there were years of insider trading investigations that compromised several Silicon Valley execs and their families.

Intuit has healed from that on-again-off-again proposal, and certainly is a stronger, smarter, better company today than it was a decade ago. But it took years for the company to get over the jilted deal.

This Microsoft-Yahoo proposition smells a lot like that ill-fated Intuit proposal. The consolidation of two significant networks will make regulators look sideways at the deal, I’m certain. On one hand, the combined companies do make an important counterweight to Google. On the other (and I think this is the hand that will win out), the combined assets may consolidate the advertising market and combine (and thereby limit competition) too many consumer Internet services to pass muster with regulators.

I may be wrong, and it many ways, I hope I am. But even while the shareholders and employees are sipping mimosas this morning, they need to be prepared if they should be left at the alter.