Microsoft Offers $44.6 Billion for Yahoo

Friday, 1 February 2008

Michael Liedtke, reporting for the AP:

Microsoft Corp. has pounced on slumping Internet icon Yahoo Inc. with an unsolicited takeover offer of $44.6 billion in its boldest bid yet to challenge Google Inc.’s dominance of the lucrative online search and advertising markets. […]

To underscore its resolve, Microsoft is offering a 62 percent premium to Yahoo’s closing stock price Thursday. If the deal is consummated, it would be by far the largest acquisition in Microsoft’s history, eclipsing last year’s $6 billion purchase of online ad service aQuantive.

My guess: Sold. That’s a big premium over Yahoo’s current share price, and I don’t see Yahoo getting there on their own any time soon.

Engineering-wise, it’s interesting. Yahoo’s stuff is almost all written in PHP, and runs on FreeBSD and Red Hat Linux servers. I don’t think Microsoft has ever bought — and maintained — a significant software product that wasn’t written against Microsoft technology. E.g., when they bought Hotmail, the migration from FreeBSD/Apache to Windows 2000 was painful and difficult. Hotmail was just one product (albeit a popular one). Yahoo has hundreds of properties, several of them, I’m guessing, more popular than Hotmail was back in 2000.

So there’s a paradox: technically, I can’t see how Microsoft would migrate all of Yahoo to Windows servers and software. But culturally, it just isn’t in Microsoft’s DNA to accept and maintain all of these PHP/FreeBSD/Linux products. My gut feeling is that Microsoft’s culture is the driving force here. I don’t think they care about any of Yahoo’s technology, with the possible exception of Yahoo Search. What Microsoft sees in Yahoo isn’t software but pageviews and advertisers. So rather than, say, rewriting Yahoo Mail using Windows technology, I expect them to just force Yahoo Mail users over to Windows Live Hotmail.

If Microsoft does mandate conversions of Yahoo products to Windows technology, the other side of the equation is worth pondering as well: How many Yahoo developers would rather quit than re-implement their products using some flavor of Dot Net?

I’m not sure, though, what Microsoft would do with Yahoo’s boutique products like Flickr, Delicious, and Upcoming. Upcoming is just a blip — the web cognoscenti crowd uses and loves it, but in the grand scheme of Yahoo’s overall traffic, it probably doesn’t even register. Flickr and Delicious are bigger, for sure, but probably irrelevant to Microsoft. I could see Microsoft selling properties like these — Flickr in particular could probably fetch a very nice price.

In short, while I expect Yahoo to accept the offer, I think it’s the end of Yahoo as we know it. Andy Baio’s analogy seems perfectly apt: “It’s like tying the Titanic to the iceberg. It’d keep you from sinking just long enough to freeze to death.”