Got Yahoo!? I’m so sorry.

ToTheSharePoint Newsletter
May 5, 2008

By Dan Holme
Office & SharePoint Pro
Community Manager

Got Yahoo!? I’m so sorry.

You’ll probably know by the time you read this, but I have to think Yahoo!’s stock will tank on Monday following the formal withdrawal of Microsoft’s offer to acquire Yahoo!. You’ve certainly heard that the withdrawal happened. On Saturday, Steve Ballmer sent a pointed letter to Yahoo! CEO and Chief Jerry Yang that clearly indicated Ballmer’s frustration with the process. The full text of the letter can be found here.

According to Ballmer’s letter, Yahoo! had not only turned down Microsoft’s initial offer (a 62 percent premium on Yahoo!’s stock price on January 31, the date of the offer) but had also turned down an offer last week of $33 per share (a 70 percent premium over the January 31 stock price) and had “insisted” (Ballmer’s words) on another $4 per share.

The numbers behind the deal are interesting to me. For the last 365 days, the 200-day average of Yahoo!’s stock price has been in the $30-$28 level, with a clear trend downward. The trading price was taking a nose-dive in early 2008. Microsoft’s offer of $31 per share, when the actual price was just over $19, brought the price back up to the $27-$29 level. So Microsoft’s offer, while a 62 percent premium, was only about 10 percent higher than the 200 day average on that day. The offer this week of $33 per share was a healthy 20 percent higher than the 200 day average. So the offer can be painted as either a super premium of 60+ percent, or a decent premium of 20+ percent. Either way. Now I’m not a major investor, but if I could make a 20 percent return by signing a dotted line, I would! Especially when the alternative is… well, watch Yahoo!’s price on Monday. It will be interesting to see where it settles over time, in relation to its $19 level of January 31. My guess: even lower. Maybe not right away, but sooner rather than later.

I think that the offer on January 31 had real promise, had it worked as planned. If Yahoo! had taken the offer, it would have shaken up the online advertising industry in a very big way, and would have been a wake up call to the 800-pound gorilla, Google. There could have been a level of excitement and momentum that might have brought the talented people of Microsoft and Yahoo! together for some real, fast progress. Instead, Yahoo! declined and, according to Ballmer’s letter, actually started planting business land mines by pursuing plans to outsource key search terms to Google. Yahoo! also made a big, big noise that it thought itself worth close to 200 percent of what the market viewed it to be worth, and that it viewed a merger with Microsoft as a “worst case scenario.” Yahoo! polluted the atmosphere in such a way that I think a merger would have become a nasty and counterproductive undertaking with major defections of talent.

In other words, Yahoo!’s executives and board not only passed up what was a great offer for its shareholders, it poisoned the water, did a little bit of scorched earth defense, and I think, in the end, will have started the company’s demise. Since the initial rejection of the offer, my bet has been that we’re now starting to see the long, protracted death of Yahoo! as we know it. I can’t imagine the company will go away, but I can’t imagine anyone will want to touch it while the company recoils from the karma it has generated this year.

In the meantime, Microsoft has done some unusually amazing things in an unusually short period of time. Although Microsoft has yet to figure out how to really market online services (in my opinion), it has released some stellar products, including:

  • Both consumer and corporate online services (in “final”, not “perpetual beta” format) that offer incredible features and tight integration with both desktop and server applications
  • Initial releases of Internet Explorer (IE) 8, which is finally going to be a standards-based browser—a huge boon for developers, and a short-term hassle for many existing sites • The release of Silverlight, which will get a tremendous boost-to-the-desktop thanks to the “coup” of Silverlight broadcasts of insane amounts of content from the summer Olympic games
  • The adoption of Office document formats by the International Standards Organization
  • The publication of mind-boggling amounts of deep, technical specifications regarding Microsoft protocols, in response to requirements set on Microsoft by the European Union (EU)
  • Improvements to Windows Live Search and to all of Microsoft’s search technologies. The company must be dumping money into Search because it's changing fast. Sure, it still has awhile to go to pull people (including myself) away from Google on the Web, but I’ve already moved away from Google for desktop and enterprise search, as have many others.
  • The announcement of Live Mesh

The latter—Live Mesh—is generating buzz among developers like I’ve not seen in a long time. Stay tuned, because this technology might be just the catapult Microsoft needs to overtake its competitors and establish a real story for its software and services model.

On a side note, speaking of software and services, is it just me, or wouldn’t Softgrid-based delivery of applications from an online service be really the ultimate way to get ultra-rich applications from the Web? Maybe I’m missing something, but why haven’t we heard anything about this possibility? I know some Microsoft people read this, so I’m hoping I get an answer as to why this isn’t part of the roadmap... Because Softgrid rocks.

In any event, the point is that Microsoft has been “awakened.” In the 1990s, we saw the rapid evolution of Microsoft “What’s this Internet Thing, Anyway?” into a power player. Now, in this decade, we’re seeing the company make tremendous strides into online search, advertising, and services. Microsoft will always move awkwardly and in lurches—I think it’s the natural result of its internally competitive structure and its approach to entering and developing a market—but it’s moving!

My personal opinion is that, just 3 months after its initial offer for Yahoo!, Microsoft is doing the right thing by walking away. Not just because of what Yahoo! did or did not do to make the deal work, but because I think Microsoft might just be able to do it alone.

Next week, I plan to introduce the first of several guest columnists to the readers of To The SharePoint. We have some exciting stuff lined up.

Until next week, all the best!

Dan Holme

danh at intelliem dot (top level commercial domain)



Quest Software

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