Yesterday I was meaning to write about Amazon's $300 million acquisition of Audible, a match made in heaven, but today comes news that Microsoft is offering $45 billion for Yahoo, which pretty much eclipses the relatively straightforward Amazon/Audible deal.
There were no shortage of rumors regarding a MSFT/YHOO merger/acquisition in 2007, but no formal proposal was actually ever made public and Yahoo came out and said that a deal didn't make sense on account of the potential upside of the restructuring and strategic initiatives set for 2007. As Microsoft CEO Steve Ballmer states, a year has passed and the competitive landscape still hasn't changed. Indeed, Project Panama has done little to improve Yahoo's situation in the advertising space and search seems to be in the place that it's been in a while - an ever more distant #2 to Google. Perhaps even more indicative of Yahoo's true status, however, was this week's announcement of plans to layoff 1,000 employees.
In the eyes of most consumers, both Microsoft and Yahoo provide second-rate products. In the operating system space, especially with the lukewarm reception Vista received, Microsoft only has their incumbency to stand on. In the internet space, MSN is to Yahoo what Yahoo is to Google, if that. Yahoo does have some great properties, but they aren't the cash cows that search and advertising are, and receive both media and internal attention according. The growth opportunities of the workhorse properties, however unglamorous, are still growth opportunities and still have yet to be harnessed and perhaps this deal is the only way that these properties will get attention.
The deal makes sense to me from a competitive perspective, but does it make sense internally? Can these two behemoths really merge operations and culture well enough to come out a stronger entity? Or will their internal focus distract them so much that Google will be able to distance itself even more from Microhoo? I don't know enough about the internals of Yahoo or Microsoft, but I know that the success of this merger will depend on a few factors, including the compatibility between the cultures and structures of both companies and the appropriate handling of redundant properties.
In the end, I look forward to this deal going through. I think it will revitalize both companies, which appear to have been operating at less-than-full capacity over the past few years. In this sense, although fewer competitors in a market tend to decrease competition in that market, I think we'll see the opposite here. Though there's a very subtle feeling out there that since both are so behind the competition, both Microsoft and Yahoo are about to, or should, give up. This acquisition will give the resulting entity a much better leg to stand on against the competition.