MSFT and YHOO: Then there were two

The bottom line: This is a move of desperation for both companies — a kind of shotgun wedding, with both sides holding a gun. Microsoft needs to buy Yahoo (or thinks it does) just as much as Yahoo needs to be bought by Microsoft. The happiest player in this particular game has to be Google: This deal means that it is dominating the market to the point where the world’s biggest personal software company and one of the founding fathers of the Web have been virtually compelled to join forces.

But can two sick dogs roped together beat one healthy dog?
Note: I did an audio slideshow for the Globe looking at Microsoft and its attempts to catch up with Google in the ad market. Here’s the link if you’re interested in listening to it.

Original post:

And then there were two. If Microsoft’s $44.6-billion (U.S.) bid for struggling Web giant Yahoo Inc. is successful — which it almost certainly will be — then there will be only two Web titans where once there was a triumvirate. Google and Microsoft will finally be going head-to-head for supremacy in the online advertising market, a game that Google has more or less controlled ever since it arrived on the scene several years ago, despite Microsoft and Yahoo’s best efforts.

Microsoft is rumoured to have made several advances to Yahoo over the past year and a half, and has been turned down each time. But now, the software behemoth is going directly to shareholders with an offer that has to look awfully good after the year Yahoo just had. Shares of the Web company have plummeted by more than 45 per cent in just the last three months, as investors have soured on the company’s chances of a rebound. Terry Semel was ousted as CEO because of a failure to deliver, and replaced by Yahoo co-founder Jerry Yang — a sentimental favourite with Yahoo fans, but a relatively unknown quantity from a management point of view.

The big question, of course, is whether this deal makes any sense or not. It clearly makes sense for Yahoo, since the company effectively gets a bye on having to come up with any kind of brilliant turnaround strategy — and shareholders, including co-founders Jerry Yang and David Filo, get a nice multibillion-dollar payday. Yahoo’s online advertising efforts haven’t had much success in growing the company’s market share, despite the fact that the company bought Overture, the firm that invented the keyword-ad market that Google later perfected. So why not sell?

For Microsoft, the question is a little murkier. Buying Yahoo has to look like a pretty sweet deal on the surface at least. Not only is the stock 60 per cent off what it was the last time Microsoft looked at buying it, but acquiring Yahoo gives the software company instant heft in its own online advertising business — a business that has continued to be a distant third in the market, despite Microsoft spending billions of dollars in an attempt to improve its position. Yahoo also has a number of attractive media properties and relationships such as Yahoo Music that Microsoft could fold into its own MSN assets.

At the same time, however, buying a company like Yahoo and trying to merge it with a gargantuan company like Microsoft is a time-consuming and expensive task — not to mention the difficulty of blending those two corporate cultures. Microsoft is a packaged software distributor at heart, while Yahoo is a Web company, and mixing those two approaches isn’t going to be easy. When Hewlett-Packard bought Compaq, it took several years for HP to actually digest the company. HP was lucky that by the time it was done, its main competitor had weakened to the point where it could get back in the game relatively easily. Google isn’t likely to give Microsoft that option.

A new dot-com poster boy (updated)

Move over, Niklas Zennstrom and Janus Friis. Sure, you guys likely got a few hundred million each from eBay for your stakes in Skype. But at 30, Friis is almost over the hill in dot-com terms, and Zennstrom is almost 40, which makes him officially a geezer. Mark Zuckerberg, the founder of the wildly popular university social network Facebook.com is 22, and his company is reportedly on the block for as much as $2-billion, according to an article at Businessweek Online.

Facebook was set up by Zuckerberg as a way for friends at Harvard University to meet each other and network about social events, in much the same way that Shawn Fanning set up Napster to help friends at university swap music. But while Shawn got tied up in lawsuits from the RIAA and his company eventually went bankrupt, Mark and his college pals — who dropped out to work on Facebook from a rooming house in Silicon Valley, according to this great piece in the Harvard Crimson — stand to become extremely wealthy. It is a private company, but Facebook appears to only have about five major stakeholders (although it has done a couple of funding rounds with VCs).

And who would pay a ridiculous sum of money like that for a university social network? Well, media giant News Corp. paid close to $1-billion for MySpace.com, which is a similar social networking site populated largely by teens sharing information on which bands they like. According to comScore MediaMetrix, Facebook.com is the seventh-most heavily trafficked site on the Internet, with more than 5 billion page views in February — more than Amazon.com, Ask.com or Disney.

It’s reasonable to assume, as Businessweek does, that Facebook.com would likely interest any media giant that wants to compete with News Corp. — and that includes Viacom, another media conglomerate run by a 70-year-old billionaire (Sumner Redstone). Young consumers are living online, and big media companies want to reach them where they live. And Mark Zuckerberg might soon be able to live pretty much wherever he wants to, instead of sharing a flat with a bunch of college buddies.

Update:

For what it’s worth, Rafat Ali over at paidcontent.org – which has a great track record on this kind of thing – says that Facebook has been on the block for awhile, and that everyone including Viacom has looked at it, and that the $2-billion figure is “at best, hearsay, and at worst media manipulation.” But Carlo at Techdirt points out that many people (including me, I confess) said similar things about Skype, and look what happened there. Om Malik says that they should have sold out for $750-million because they are slipping in popularity (Markus from plentyoffish.com makes some good points in his comment on my post)

iStockPhoto of Calgary gets bought by Getty

Who says there’s no Web-buyout action going on in the Great White North? It may not compare with Yahoo buying Flickr or del.icio.us in terms of visibility, but in the world of downloadable stock photography, iStockPhoto.com – based in my former home town of Calgary, Alberta – has been one of the early stars, and so it’s interesting to find out that they have been acquired by stock photo giant Getty Images for about $50-million (U.S.). Thanks to Thomas Hawk for pointing that one out.

Along with Corbis (owned by Bill Gates), Getty is one of the largest players in the industry. If you see a classic or iconic shot in a newspaper or magazine or on a website, there are good odds it belongs to Getty. There’s more information on the buyout at an online photo magazine called Photo District News Online, and much discussion at StockPhotoTalk, run by Andy Goetze, who mentioned a rumour that Getty would buy iStockPhoto in a post three weeks ago.

According to the reports, Getty will continue to operate iStockPhoto.com as a separate unit, run by iStockPhoto CEO Bruce Livingstone and about 30 employees (a nice payout for them). As far as I can tell, this is one of the first signs that the world of big, expensive, global stock-photo companies such as Getty and Corbis has started to pay attention to the small, inexpensive, Web-distributed model being pursued by iStockPhoto, Fotolia.com and others.

As Thomas Hawk mentions in his post, imagine what Yahoo could do if it started trying to monetize some of the photos in Flickr. And if you want to explore this topic further, Alan Meckler of Jupitermedia.com – which also owns a stock-photo company – has some thoughts here, and StockAsylum notes that Getty is trying to soothe the ruffled feathers of its professional photographer suppliers, who might think it is going down-market.

Why would anyone want to buy Opera?

So now it’s Microsoft that’s supposedly going to buy Opera, everybody’s second favourite alternative browser (next to Firefox, of course). Not that long ago, Google was reported to be the one looking at buying the company. Of course, Google was supposed to buy Riya too, but that never happened.

This one could wind up in the “nice rumour, shame about the facts” file as well. A spokesman for Opera says there is no truth to the rumour, and while companies often deny things that eventually turn out to be true, the denial wasn’t one of those weaselly “we can’t comment” denials – it was a flat-out “no way it’s happening,” kind of denial.

Could Microsoft be looking at acquiring Opera? Sure it could. After all, buying the company would probably cost about what Microsoft generates in free cash flow every half an hour or so. But why? Opera has about 1 per cent of the browser market, which makes Firefox look like a giant. It’s not a bad browser, but all the things that make it special – including the tabs and other doo-dads, as well as the stripped-down mobile version – are fairly easy to duplicate.

So the question is, why buy the company? Any goodwill that Opera has developed in the browser market would be annihilated by a Microsoft acquisition, so that’s worthless. The browser is free (thanks to a deal with Google). In fact, the Google rumour made way more sense, since Google doesn’t currently have a browser. Of course, that doesn’t mean Microsoft won’t buy Opera anyway – it just means I don’t think it makes much sense. My friend Paul Kedrosky says it makes as Microsoft “buying a lavender farm.”

Hang in there, Riya

After much talk about Riya being acquired by Google, the facial-recognition-software startup has decided to remain independent, according to co-founder Munjal Shah. Microsoft blogger Robert Scoble says that Microsoft also looked at the company but decided to pass.

And maybe that’s a good thing. For what it’s worth, I took a look at Dare Obasanjo’s post on how to flip your company to one of the big guys (GYM or whatever we’re calling them now), and I wound up agreeing with Paul Kedrosky on the subject (and no, not just because he’s Canadian). Making a flip your end goal is the wrong approach – but not because the profit motive corrupts your principles or something starry-eyed like that. Because, ironically, that approach tends to make your company into something that isn’t really worth acquiring.

To quote Paul, who said it better than I could: “The best way to get purchased by anyone — GYM included — is to build a great team, find a large and growing underserved market, build a great product/service for which people will pay more than it costs to provide, grow faster than the market, and stay paranoid that a hundred other companies are gunning for you all the time.” Well said — and now Riya can continue to do that. And for what it’s worth, some people seem to agree.