Tuesday, February 05, 2008

And then there were two ...

So Microsoft wants to buy Yahoo!, huh? The BBC describes this as a shotgun wedding - with Google wielding the shotgun. [BBC News, February 1st, 2008] And in a post entitled Monkey Boy's three-legged race, Fake Steve Jobs reminds Steve Ballmer of his previous disdain for mergers. When such mergers involved companies getting together to compete against Microsoft, maybe Microsoft could afford to be confidently superior. But now it seems it's Microsoft that needs a merger (with Yahoo!) to compete against the market leader (Google), and Ballmer's previous words may come back to haunt him.

(For another deal like this, think of Oracle buying PeopleSoft to compete with SAP.)

Google purports to be upset at the deal, with a pompous protest from its Chief Legal Officer entitled Yahoo! and the future of the Internet, and even the often cynical Fake Steve seems to take this protest at face value. But if Fake Steve's own analysis is correct, Google has no need to worry. Challenging the deal may simply be a way of making sure the Microsoft board can't back down without losing face.

Apart from Google, Microsoft and the Yahoo! shareholders, who are the winners and losers in this game? Bill Burnham thinks that this is a Bad Deal for Silicon Valley, because Yahoo! was one of the prime buyers of internet startups (notably del.icio.us and Flickr). But of course there are plenty other players. eBay is perhaps still licking its wounds after the over-priced acquisition of Skype, and NewsCorp (which has ruled out a rival bid for Yahoo!) maybe hasn't yet quite worked out what to do with MySpace, but that leaves TimeWarner (owner of AOL), Comcast (owner of thePlatform), IAC (owner of Ask and Bloglines) and a few others.

Oh yes, AOL-TimeWarner, that was a merger wasn't it? The $200bn company that was created by the take-over of media giant TimeWarner by the Internet upstart AOL, but the letters AOL no longer part of the company name, and AOL has now reverted to its ordained place in the corporate world, as a division of a large media company called TimeWarner. A number of the AOL local operations have been sold off, and Google currently has a 5% stake of the remainder [Press Release].

In the past, TimeWarner has got rid of many once-profitable divisions, including Atari, MTV Networks, and Time-Life. Some investors have demanded a break-up of Time and Warner, so perhaps a return to the good old days of Warner Brothers. That kind of thing seems to be normal ebb and flow among media companies. Companies can merge, but they don't necessarily stay merged.

But we haven't seen much of that in the software industry yet. To date, IBM and Microsoft have successfully defended themselves against regulatory break-up. (But the future demands of Wall Street may be more difficult to ignore.) The post-merger Microsoft will be a different kind of company, with new challenges. Maybe Steve Ballmer needs to take Larry Ellison out to lunch and pick his brains. (And I never thought I'd say that.)

Update (further commentary)

  • If apparently intelligent people/organizations do apparently stupid things, it is tempting to look for some secret conspiracy or hidden motive that will make sense of the plan. For example, the Economist thinks this might be a devious trap to get Google snared in antitrust action. [The Economist (Feb 5th), via Fake Steve Jobs]
  • Marc Andreessen agrees with me that there are plenty other companies acquiring Internet property, but Bill Burnham still thinks the overall effect is negative for Silicon Valley. Fred Wilson sums up: It's time to think long-term.
  • Meanwhile Fake Steve Jobs is enjoying himself. Some months ago he was complaining of boredom, pining for a really good train-wreck merger. A reader asks if the Microsoft / Yahoo deal qualifies for this description. FSJ's answer is a resounding Yes.

Another Update

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