Microsoft bids for Yahoo to challange market leader Google
Written by admin on February 5th, 2008 in Business, Companies, Trading.
On Friday news broke that Microsoft have tabled a bid to buy rival search company Yahoo for a figure of $44.6bn in cash and shares, 62% above Yahoo’s closing market share price on Thursday.
The offer was presented in a letter to the Yahoo board and came only days after revenue forecasts had been cut, and the company had subsequently committed $300m to try and revive the business in 2008.
The two competitors have found it increasingly difficult in the field of internet search and online advertising in recent years with the increasing dominance of third rival and market leader Google. Microsoft’s take over would merge the two rivals and create an entity that then could better compete with the market leader.
A statement from yahoo upon confirmation of the bid from Microsoft read that yahoo would evaluate the proposal “Carefully and promptly in the context of Yahoo’s strategic plans and pursue the best course of action to maximize long-term value for shareholders.”
With the increasing belief by many that Microsoft’s existing business model becoming more unfeasible in the internet age, this offer indicates a radical shift in how Microsoft perceives the internet and its own future within it.
Over the last twelve months major search rival Google has began to offer free online software alternatives for much of Microsoft’s offerings, challenging the enterprise business model the software giant in built upon.
Currently Microsoft makes the majority of its money by selling license fees to its impressive software packages installed on PCs and servers. Google’s services available freely over the internet severely threaten this.
Coupled with the increasing threat to its core industry, the change in thinking demonstrated by Microsoft is undoubtedly due to the gems in Yahoo’s online advertising empire, a sector that Microsoft has thus far struggled to move into with any great success. Yahoo also offers a range of online applications that could bolster Microsoft’s existing Windows Live online services for both businesses and consumers.
There is the chance of a rival bid for Yahoo still being lodged, possibly from a media organisation, but there are few could offer a similar price to that of which Microsoft is offering. Rupert Murdoch’s News Corp. is one media conglomerate that could potentially do so, and a rival bid from Google is not off the table quite yet.
If Google do not launch a counter bid to Microsoft’s offer the search market leader will certainly delay proceedings by filing anti-competitive legal action against Microsoft in the hope of derailing any deal taking place, much in the same way Microsoft did to Google over DoubleClick last year.
It is already understood that Google executives have asked for a political strategy to challenge the acquisition of Yahoo which could threaten Google’s own dominance of online advertising. How far Google will go with any challenge is as yet unknown.
If the deal was to go through despite a challenge from Google, it would certainly consolidate the market and make two clear rivals, setting up a credible competitor to market leader Google. We would then be left with a true Microsoft versus Google scenario.
