What's next for Microsoft and Yahoo!
There was an audible collective sigh of relief that the Microsoft-Yahoo! acquisition soap opera was finally at an end. For three months, the tech world has been paralyzed by the prospect of “Microhoo”, believing that the deal was inevitable. Sanity prevailed on Saturday, as the two giants couldn’t come to an agreement on price and Microsoft declined to pursue a hostile bid that could have proven ruinous to both companies. (Full text of the Microsoft announcement and the Yahoo! response are available.)
A year ago, I wrote about why such a deal wouldn't work, and also how Google would act as Yahoo!'s savior. An acquisiition may still come to pass in the future, but at a significantly lower price. But the world continues to turn and both companies will have to explain themselves to investors, employees, advertisers, and consumers.
Microsoft must define and deliver on a strategy that shows how they can “win” now without Yahoo! as a search jump start. (Frankly, we were skeptical that Microsoft could have integrated Yahoo quickly and effectively to realize the full value and vision of the acquisition). Rather than continue to chase Google’s dominant search position, Microsoft should redefine the “battle” to one where search is an integrated part of the marketing mix. Microsoft has assets and relationships that GOOG doesn’t have: 400 million users relationships through communication tools like Hotmail and Messenger, the aQuantive acquisition, strong display advertising business, and investments/relationships like Facebook. Moreover, AdCenter is well positioned to service advertisers on both the display and search sides, although actual offeringDeal is offs that tie the two together are still in the works. But the thing they don't have today is a strong search user experience, the root of the problem.
With the Microsoft acquisition threat fading, Yahoo! has been given a reprieve but it must explain and execute on a strategy that supports their belief that the company is worth $37 a share – or face another round of acquisition attempts and shareholder revolt. Yahoo!’s three-pronged strategy of being the starting point, advertising platform for the Web, and openness is sound but it has been muddled due to poor communication and tactical steps. At the core, Yahoo! has to convince advertisers that it still believes in its advertising platform, especially in light of the tests it was conducting with Google’s search marketing platform. If Yahoo! ends up trading in its Panama search platform for higher search revenues from Google, it will be giving up any potential for a workable integrated ad platform. Yahoo!'s advantages especially in behavioral marketing could strongly tie together display and search marketing and the foundation for new marketing solutions and revenues. And it's new Yahoo! Open strategy could position it well regain the engagement of users.
And let's take a quick look at Google. From any perspective, Google was going to come out strong from this three-month soap opera. A dispirited Microsoft and floundering Yahoo mean Google can point to itself as the safe haven for both marketers and consumers.
What do you think about each company's positioning and strategy -- does each company have the right game plan and assets in place? And if not, what should they be doing?
My previous posts:
Feb 1, 2008: Microsoft's bid for Yahoo!: What it means
My pick of the best analysis thus far:
Paul Kedrosky: Analysis of the Microsoft Decision, Plus Yahoo's Hari-Kari
Michael Arrington: Yahoo's Tough Week Ahead
Om Malik: Microsoft to Yahoo: Take A Hike
Joe Wilcox: The Microsoft-Yahoo Blame Game