Yahoo should call Microsoft’s bluff. That may sound like a churlish suggestion given the software behemoth’s apparent disdain for its onetime Internet sweetheart. But everyone continues to lose ground to Google in search. Yahoo says it could put an end to that if it just had scale. It should put its money where its mouth is and offer to buy Microsoft’s MSN unit with a public bear hug.
Yahoo has little to lose. Its stock is trading at a third of Microsoft’s February bid of $31 a share. Its proposed partnership with Google was dropped by the search company a few weeks ago, and Microsoft’s chief, Steve Ballmer, continues to publicly spurn reconciliation attempts. This disappointment led to Jerry Yang’s recent resignation and the Yahoo board’s search for a new leader.
Meanwhile, Google keeps gobbling up market share in search. The latest figures show it has a dominant 63 percent share of the United States market, an 8 percent increase over last year, according to comScore. Yahoo has been one of the biggest losers. Its share is now just 20 percent.
Yahoo says it can reverse this with greater scale. That’s because the more searches a particular engine attracts, the more effective its search algorithm becomes, it says. In turn, the more accurate search results bring even more activity, creating a virtuous cycle.
If Yahoo believes its own story, it should try to incorporate Microsoft’s MSN unit. The online and search division is equally challenged by Google and has just 8.5 percent of the market, giving it even less scale than Yahoo. And many Microsoft shareholders would love to see the company jettison a business that has been a management distraction and a money-loser.
What’s it worth? One guide is Google’s market capitalization, which assigns about $1.4 billion of value for each percentage point of market share. Discount that by a third to reflect Google’s dominance, and MSN might be worth $8 billion. With Yahoo valued at near twice that, it could offer to take MSN off Microsoft shareholders’ hands for stock, giving Microsoft a third of the combination and exposure to any value created.
There’s another benefit to Yahoo of going on the offensive. By forcing Microsoft to defend its search position, Yahoo might get its rival to admit that its bigger worry is the threat of so-called cloud computing, where rivals like Google offer Web-based versions of Microsoft’s core software business, free.
Since dropping his offer for Yahoo, Mr. Ballmer has been able to depress Yahoo’s stock just by opening his mouth. A public offer for MSN could give Yahoo similar power. And there’s always the chance that Microsoft will try to squelch its rival with a bid.
0 comments:
Post a Comment