February 08, 2008


Every blogger these days seems to be sharing their two cents on the Microsoft/Yahoo merger. $44,600,000,000 is no small number, I know plenty of countries that do not make that in their yearly GDP. So what is the big deal with this merger other than plenty of zeros and a battle between two, huge tech giants (Microsoft and Google).

Some basic information that we will need:
Market Value:
(M: 296 Billion, G: 147 Billion). Google is 49% of Microsoft

2006 Revenue: (M:44.28 Billion, G: 10.6 Billion) Google is 24% of Microsoft

Online Advertising Revenue: (M: 2.29 Billion, G: 7.3 Billion) Google is 68% larger than Microsoft.

*A combined Microsoft and Yahoo would have 27% of Worldwide Search Share, Google would have 66%

*Zenith optimedia expects global online ad-spend to grow with 28.2%, that would be roughly $184.39 Billion spent on online ad spending (Global Ad-spend est. at 653.9 Billion). *Google has been outgrowing Microsoft every quarter since its 2004 IPO

Google is a behemoth, its actually quite amusing to read their online blog which challenges the antitrust issues with such a merger. Microsoft may have a long history of such antitrust issues but Google's ever growing influence on the industry is starting to show similar signs.

This merger is an effective and attempt by Microsoft to battle on Google's turf, especially with online ad-spend growing exponentially. Lets not forget that this fight for online advertising market share has a distinct impact on the mobile advertising industry. These are both, extremely large pools of $ that both Microsoft and Google are maneuvering to command.

Our world is becoming increasingly ingrained and I would say, reliant on our computers and cell phones. With these industries well within a strong growth curve, you can understand the speed and commitment being made by Microsoft and Google to one up each other. The future direction of the advertising world rests on these industries. The shift from impersonal to personal advertisements, from mass hits to direct, from unknown to known demographics, this will all be realized to a large extent through the efforts of Microsoft and Google to develop an effective advertising platform. Our lives as consumers will be entering an golden era of personalization.

Of course there are some major issues at stake for Microsoft. For one, Yahoo has not been doing particularly well as a business these days. As stated by Jon Fisher (one of the investment analysts): "With Microsoft paying a full price for a broken business where there's not accelerating organic growth, I can't make that work at all." With an estimated $50 billion value, this is not going to be an easy pill to swallow and it may be the stumble that Google needs to take the lead.

The synergies between Yahoo and Microsoft are good, but I wonder if they are $50 billion good? Fundamentally, both Yahoo and Microsoft suffer from a business model that is in my opinion, inferior to Google's: The Centralized Operations Model v.s. Google's Distributed Network Model. Lets not forget that the web is built primarily off a distributed network model-- which is a large part of what has made Google so dynamic and efficient!

These are some concerns that I am sure the brains of Microsoft are spending dateless nights figuring out. From an outsiders perspective, who's knowledge of the online industry is substantially meager, this merger is one that is on the right track. Google should be worried.


Anonymous said...

i guess in some way, google should be worried. but i don't think google will just sit there and watch this merger take over. isn't it google is also working on some projects to diversify - like venturing in mobile advertising? well if yahoo and microsoft will team up but will still focus on just one medium, i guess there's nothing google should be scared of. likewise, i don't want to underestimate this merger. so on second thought, definitely yahoo and microsoft will come up with something bigger - something that will go beyond the mob's expectations. let's just wait and see.

The Jolly Jetsetter said...

Yes, google has been trying to bid for the 700mhz wireless space in the USA (non-confirmed yet). However, its more the way they are positioning. My feeling is that they have the Mobile Industry dead in their sights and taking the next few months to a year to prepare. Mobile/Online advertising is the next big wave.