Non-obvious winners and losers in Microsoft Yahoo Deal

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


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.


Advertising Agencies: 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 are 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.  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. Leave new

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… 😉

Fred Hamranhansenhansen
February 1, 2008 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.

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’

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 🙂

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

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.

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.

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? 😛

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?

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…

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.

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.