If I worked for Google and had to hatch a great plan to create a setback for my biggest competitors I would do whatever I could to get Microsoft to acquire Yahoo. Here's why:
1. Microsoft and Yahoo both operate struggling online advertising operations that have stumbled time and time again over the last few years. In any type of business combining two struggling operations is usually a recipe for disaster. This time will be no different.
2. By the time the deal receives regulatory approval, a coherent strategy is formed, executives jostle for power and position in the combined operation, technology is integrated (search, portals, ad platforms, etc) and operations are combined the market will have moved quickly and MSFT/YHOO will need a new plan. The internet business in general, and the online ad world specifically is innovating at a rapid pace. Keeping up with the market changes requires focus and determination. When employees are forced to focus internally and employees are more concerned with where they stand in the new organization than how to progress the business and gain more market share, bad things usually happen.
3. Google only needs to aim one large gun in only one direction making it easier now to further leverage their market position and increase their reach and power. I expect almost immediately for Google's share of search to increase and for MSFT to continue to lose share and for YHOO to start losing share. While MSFT and YHOO will lose focus, Google's will increase.
4. Microsoft is a seasoned company that is unseasoned at making and integrating large, transformative acquisitions. To date, Microsoft has prided itself on building a large company while making only relatively small acquisitions. As a result, the company's DNA isn't conducive to this sort of deal further increasing execution risk. Add the smaller acquisitions MSFT and YHOO are still in the process of integrating (Blue Lithium, RightMedia, FAST, etc.) and the risk inherent in a MSFT/YHOO combination skyrockets.
5. Brain drain - our fund has seen a steady flow of YHOO resumes over the last year. Many of the best brains have already left YHOO for greener pastures (Google), new ventures or retirement. Will the remaining stars at YHOO want to stay to see this deal through or will they be picked off? If they do stay, how much money will MSFT need to hand out to retain them?
So turn up the music..............................
While Google execs should singing Lionel Ritchie's Dancing on the Ceiling:
Man what in the world is happening down
At the end of the hall'
I don't have a clue'
Let's check this thing out!
What is happening here
Something's going on that's not quite clear
Somebody turn on the lights
We're gonna have a party
It's starting tonight
Oh, what a feeling
When we're dancing on the ceiling
Oh, what a feeling
When we're dancing on the ceiling
Microsoft and Yahoo execs should be singing Simon and Garfunkel's Slip Slidin Away:
Slip slidin away
Slip slidin away
You know the nearer your destination
The more youre slip slidin away
