My summer prediction: Microsoft will buy Yahoo by year end

By Nigel Morgan | 1 Comments | Posted in in Marketing , Optimization | Permalink

So it has been a long summer so far and I hope there are many more days of sunshine to go. It has had its ups, just look at Michael Phelps, and it has had its downs as we bid farewell to Isaac and Bernie. Of course for us online marketers there has been an ongoing story that has had both the ups and the downs. I am talking of course about the on again, off again, on again but now off again saga of the Microsoft takeover of Yahoo.

So while Jerry Yang is in China at the Olympics and the Microsoft upper management is enjoying a fine Pacific Northwest summer, I will throw in my opinions on where this story will end.

To me it is quite clear that this merger will happen; there are a number of reasons why this deal will go through for Microsoft and Yahoo. I list them here and ask you all to join the debate!

Market share of total online ad revenues.

This is the number one reason why this takeover will happen. Online advertising revenues are still growing very fast and will continue to do so according to every survey and expert opinion you read.

Today Google is firmly in the box seat owing to its market position as undisputed search engine leader and ownership of Doubleclick. Once Google fully optimizes it’s ability to understand the vast majority of internet behaviors through its search engine and Doubleclick tags, it will be able to target marketing messaging to daunting effect (read attain massive revenues from online advertisers). Although MSFT owns Atlas, the combination of Atlas and MSN will, most likely, never get MSFT to a market leadership position. If Microsoft doesn’t gain a huge increase in market share and soon, it will be virtually impossible for them to catch Google. How do you suddenly increase market share? Answer, buy a competitor.

“Owning” the vision of the PC is Microsoft’s heritage

Microsoft has continually innovated across the years and while they have some very successful products such as X-Box, Windows and Office to name a few, they have not truly come on from their computer on every desktop vision of 20 years ago.

When a computer was used mostly for work, Microsoft set the vision for the personal computer with its operating systems and productivity software. These products are still by far the biggest driver of the company’s profits. However thanks to internet applications PCs now are equally used for recreation and Microsoft has never managed to dominate the market in this reality. Microsoft’s online presence that gave them early market advantage in the form of Internet Explorer and MSN are becoming more strategically irrelevant every day and their market share continues to follow a long-slow downward trajectory. Efforts such as Silver light, .NET and other initiatives will not change the fortunes of Microsoft in this regards.

The people at Microsoft need to innovate

While Microsoft could happily continue to dominate the OS market, Bill Gates will not want to see his life’s work become a monopolistic commodity. Microsoft also has enormously talented employees and they will not go down this route without kicking and screaming.

It makes good old fashion financial sense.

Although MSN and Yahoo users will not like me saying it, they really are substitute products for each other. Taking best practices from each and merging them together will improve the product and dramatically reduce redundancy. It will also create a broad base of messenger and email users that will dwarf the number of users on gmail. This is one beachhead that a combined Yahoo/MSFT should exploit in their ability to compete with Google.

At the end of the day, it may be the only path ahead for Yahoo too

Unless Yahoo does things very differently, they will continue to lose market share in search queries. This will ultimately result in long-term financial disaster as their editorial teams and messenger and email products will be left to support site visits and therefore online ad revenues. Yahoo’s content is not differentiated enough from other content sources to survive in the long run.

So, a takeover makes a lot of sense, ironically more so for the one that is blocking it. Microsoft can have a future without Yahoo but I struggle to see where Yahoo fits into the online ecosystem long term. Therefore I predict that Yahoo will come to this conclusion, Microsoft will have another attempt at a takeover and this time it will go through.

So there you have my opinions. I’m off to see my stockbroker!