I wrote a while back about the Downfall of the Microsoft Empire. In that article I wrote about all Microsoft’s competitors and how they were attacking Microsoft on all fronts. I digress, with today’s news that Microsoft made a $44.6B offer to buyout Yahoo, Microsoft may be the downfall of their own empire. That is not only a massive premium over the existing market value of Yahoo, but a futile attempt against Google. According to Compete.com, Microsoft is basically saying that each Yahoo customer is worth $1200. How long do you think it would take to recoup $1200 per customer on search advertisements? Exactly. And do you think that with a merger the customers are going to stay loyal to Microsoft or Yahoo Search?
How can the number #2 search and #4 search leaders, who are falling further and further behind Google, beat Google by merging? Large mergers and acquisitions are almost certainly doomsday for corporations. Look at these horrible big-time mergers and acquisitions: HP & Compaq, AOL and Timewarner, Sun and Cobalt. Why should Microsoft take such a huge risk? With Microsoft’s giant cash war chest, why make such a move? Why not buy a smaller search leader, like Baidu? Less risk, more agile synergies, faster integration. You don’t have to overtake Google to continue to have a successful company. Microsoft is still a successful company, albeit an inefficient innovator; however, their businesses, overall, are still doing well. With this move, they’re running scared and that often mean poor decision-making.
If this large buyout does occur, it can only slow down both Microsoft and Yahoo as they begin to integrate and merge their disparate technologies and staff. Integration will be a multi-year project. This would allow Google to further push out their formidable lead. At this time, I believe Google already has a 5 year advantage on technology and infrastructure when compared to Microsoft, Yahoo, or anyone else.
With one swift move, Microsoft may undo 30 years of excellent business execution. Without a cash war chest they may be defenseless. In other words, Microsoft may be the downfall of their own empire.