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Non-obvious winners and losers in Microsoft Yahoo Deal

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The tech com­mu­nity is buzzing at the news that Microsoft has made an unso­licited US$44.6 bil­lion offer to acquire Yahoo and word is that Yahoo is actu­ally con­sid­er­ing it very seri­ously.

The poten­tial merger has long been rumored and there are many rea­sons for which it could actu­ally make a lot of sense for both com­pa­nies. A ques­tion, though, remains as to who the win­ners and losers are in that deal. Topline, it’s clear that Microsoft and Yahoo ben­e­fit from this and clear that it doesn’t ben­e­fit Google. But who else?

Let’s look at the deal and try to fig­ure it outs

Win­ners

OpenID: Only a few days ago, Yahoo announced sup­port for OpenID, a sys­tem that allows users to use their yahoo cre­den­tials as a way to login to other ser­vices. Sur­pris­ingly, this was the goal of Microsoft Pass­port (now knows as Win­dows Live ID), almost a decade ago. A pair­ing between Microsoft and Yahoo could rep­re­sent a major win for OpenID, espe­cially if the part­ner­ship extends Yahoo’s com­mit­ment to Win­dows. One could see OpenID being incor­po­rated with Active Direc­tory in the future, leav­ing any non-openID provider in a lurch.

AT&T: Yahoo has a part­ner­ship with AT&T for IPTV. Com­bine that with the recent acqui­si­tion of Maven Net­works, the IPTV efforts Microsoft has taken, and its rela­tion­ship with MSNBC and there’s added strength pro­vided to AT&T’s foray into the tele­vi­sion space.

AOL: Many peo­ple would put AOL in the loser cat­e­gory but I think this part­ner­ship makes it a poten­tial acqui­si­tion tar­get for Google now, which means that Time-Warner could try to get a pre­mium and spin-off a prop­erty they’ve had a hard time managing.

Losers

Adver­tis­ing Agen­cies: It was only a few weeks ago that I joined GroupM. At the time, my feel­ing was that some­one needed to build a counter-balance to Google’s power in the online space and, since any online pair­ing seemed unlikely, large ad buy­ers were the only ones that could pro­vide that counter-balance. Now that Microsoft and Yahoo are pro­vid­ing that counter-balance, adver­tis­ers are going to be squeezed not by one but two giants. With two play­ers rep­re­sent­ing more than 75 per­cent of all pos­si­ble ad buys, the online com­pa­nies will dic­tate terms to ad agen­cies and not the other way around. That win­dow of oppor­tu­nity appears to be clos­ing for ad agencies.

How­ever, a large enough online ad buyer could, if they stan­dard­ized their plat­form and stream­lined it to make sin­gle aggre­gated buys (for exam­ple, tell Google or Microsoft/Yahoo! that you will buy XX% per­cent of their ad inven­tory next quar­ter if they dis­count the rates by YY% com­pared to the com­pe­ti­tion) but ad agen­cies do not yet have enough stream­lined data to be able to build risk mod­els around such large scale purchases.

Ask.com:  Unfor­tu­nately, IAC does not have any major part­ner­ship with the larger play­ers in the mar­ket. It’s fight to stay in the search game appears to be an uphill strug­gle from now on. There doesn’t seem to be that many strate­gic options relat­ing to the chang­ing dynam­ics of their por­tion of the market.

News Corp.: A com­bined Yahoo/Microsoft part­ner­ship would own roughly 40 per­cent of the over­all mar­ket for finance-related online news (accord­ing to Hit­wise, Yahoo finance is just shy of 30% of the mar­ket and MSN money rep­re­sents a bit over 10% ). This will have an impact on the likes of Mar­ket­Watch and the Wall Street Jour­nal online. Fur­ther­more, the cou­pling of Microsoft’s desk­top money client with Yahoo’s strength in the online finance news space will be hard to defeat.

Any email provider: Microsoft/Yahoo will have almost 80 per­cent of the web­mail mar­ket (Gmail comes in sec­ond with 6 per­cent). This means that any com­pany that is try­ing to pro­vide this as a stand­alone ser­vice will have to fol­low what­ever direc­tion the new entity takes.

Web 2.0 com­pa­nies: With one less buyer in the mar­ket, that makes it more dif­fi­cult to sell at a rick premium.

I’m sure there are many oth­ers I’m miss­ing. Feel free to com­ment in the dis­cus­sion thread.

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12 Comments

  1. 1João — February 1, 2008 at 7:04 pm

    I can’t agree with you on two of the com­pa­nies you men­tioned: AT&T and Google.

    Sim­ple: the whole Win­dows Media strat­egy has been, after all, a huge fiasco, and will stay that way in the wake of the impend­ing AppleTV 2.0 update. There’s no way on earth that AT&T will ben­e­fit from Microsoft’s “exper­tise” in that area, IMHO…

    As for Google? I’m guess­ing they’re not that afraid of Microsoft, really… And hon­estly, do you want me to believe that Gmail only com­mands a 6% mar­ket­share? And heck, even if it actu­ally does, this merger will, if any­thing, *help* them GAIN some more. I speak from expe­ri­ence: I dumped Microsoft Hot­mail (back in the day it was still called MSN Hot­mail, before this Win­dows Live-branding idiocy) because I just had enough of their ser­vices (also, I had recently switched to the Mac, so I was in the appro­pri­ate mind­set, but I can assure you that even­tu­ally, I’d have switched to Gmail regard­less)… If I was, say, a long­time Yahoo Mail user I would, mark my words, dump Microsoft even faster, and it’d be out of spite.

    Like me, there are many more peo­ple who are, by now, fig­ur­ing the emperor never had any clothes to begin with… To me, this acqui­si­tion reeks both of a des­per­a­tion move and Microsoft’s trade­mark monop­o­lis­tic tac­tics of the 90’s com­bined. This time, though, with the Mac’s resur­gence, the Mozilla foun­da­tion chew­ing away at IE’s mar­ket­share and Microsoft los­ing bil­lions on their enter­tain­ment ven­tures, His­tory won’t repeat itself, or so I hope; call it Microsoft’s Swan Song, if you will… ;)

  2. 2Fred Hamranhansenhansen — February 1, 2008 at 9:37 pm

    Will they be called Yahoo! or Microsoft? The Microsoft brand is shit, they hide it in favor of Xbox and Zune, both money-losing brands.

    This seems much more inter­est­ing if it leads to a Win­dows 7 with a Unix core OS and an IE that can pass an ACID test.

  3. 3Mitch — February 1, 2008 at 10:15 pm

    Google buy AOL?? What are you nuts?

    There is no way Google would buy AOL — Aol has hor­ri­ble tech­nol­ogy / user experience.

    Google has noth­ing to be scared of. If Microsoft buys Yahoo!, there will be a huge win­dow of oppor­tu­nity for Google to widen its’ lead while Micro­Hoo! fig­ures out ‘Now What’

  4. 4Tristan Louis — February 1, 2008 at 10:41 pm

    Fred: the next ver­sion of IE can pass the ACID test (there was some­thing on their blog not too long ago). How­ever, I wouldn’t hold my breath for them mov­ing to a Unix Core OS :)

  5. 5Tristan Louis — February 1, 2008 at 10:42 pm

    Mitch: Google already owns 5% of AOL so they’d buy the rest. It’s more about eye­balls than anything.

  6. 6Myles Eftos — February 2, 2008 at 12:40 am

    Yeah, don’t hold your breath for OpenID — Microsoft has pumped to much in to Win­dows Live ID, that I doubt they would drop it for a tech­nol­ogy that is so young.

  7. 7tonza — February 2, 2008 at 6:50 am

    I agree with Mitch,

    and I’ll go a step fur­ther dar­ingly and say that because Apple have a tech­ni­cal stake in AOL (it’s the under­ly­ing ser­vice that dri­ves Apple’s iChat infra­struc­ture) then if any­one ought to acquire AOL, it should be Apple.

    (But Google acquir­ing AOL ought to be inter­est­ing and use­ful for Apple, too, since I would imag­ine that Apple and Google have been technology-sharing and col­lab­o­rat­ing for a good while now!)

    My 5 cents.

  8. 8João — February 2, 2008 at 10:41 am

    Fred & Tris­tan: Inter­est­ing idea, that of mov­ing to a Unix Core OS… Ever since I switched to the Mac, back in the 10.2 / 9.2.2 “Clas­sic” days (Now I’m run­ning Leop­ard but I’ll still keep a Tiger par­ti­tion to play some old games, since I’m still stuck with a Pow­erPC ;) ), I’ve been ask­ing myself if it wouldn’t be wiser for them to out­right buy a Unix dis­tri­b­u­tion and develop a sand­boxed DOS/Win9x/NT mode… After all, Vista broke a lot of apps and periph­er­als any­way, and Apple, being the tiny midget com­pany it is in com­par­i­son, man­aged to do the exact same thing in but a few years.

    Sure, if Microsoft did that, it would break back­wards com­pat­i­bil­ity, big time. But if they man­aged to make a phased tran­si­tion from 9x to NT, why couldn’t they try the same with Unix (or a Unix-ish OS of some sort)? Just to stick it to the world and prove they can[not] write an OS of their own? :P

  9. 9Luke — February 4, 2008 at 9:32 am

    Can you point me to one good rea­son why Google would buy AOL. Google has a track record of acquir­ing other com­pa­nies. I’ll give you that. But they’ve always done it to gain use­ful tech­nol­ogy that they couldn’t eas­ily recre­ate in-house. What tech­nol­ogy does AOL have that Google would be inter­ested in?

  10. 10Tristan Louis — February 4, 2008 at 1:23 pm

    Myles: Microsoft has spent a lot of money across all their online prop­er­ties so I think this move could actu­ally get them to rethink and refo­cus a num­ber of their initiatives…

  11. 11Tristan Louis — February 4, 2008 at 1:25 pm

    tonza and Like: Remem­ber that Google already owns about 5% of AOL and that AOL has a lot of online brands. It’s more about reach and ad inven­tory than actual tech­nol­ogy, as far as I see it.

  12. 12Tony E. — February 11, 2008 at 2:52 am

    I’d say that Microsoft ended up with egg on its face Sat­ur­day… I get the feel­ing that the “bid” existed mostly as a way to pres­sure Google to make its own pro­posal, but Google didn’t take the bait.

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