Yahoo!: Is Microsoft Trying To Catch A Falling Knife?

Posted in Business, Stocks

With Yahoo!’s market shares losing nearly 40% of their value just in the past three months, and no immediate recovery plan in sight (at least anything announced publicly to analysts and investors), there doesn’t seem to be much light at the end of the tunnel. The 50% increase in stock value on 2/01/2008, upon news of Microsoft’s offer, only goes to show how bad Yahoo!’s situation is: the buyout is the only way they can potentially recover, unless they take some drastic measures to curb their losses. And by drastic, I mean revolutionary. Something that can best Google’s offerings. Something that will change the face of the Internet as we know it. Otherwise, at this rate, Google will continue to absorb users, advertisers, and effectively, potential cash from Yahoo!.

On a personal note, I have recently stopped using Yahoo!’s publisher advertising program, as their RPC (rate per click) has plunged since the program’s onset. Their lack of support for the big publishers, and extremely limited advertiser pool has sent that program down the tubes. I know many fellow webmasters who have also flocked back to Google’s Adsense for their contextual ad serving needs; Yahoo!’s just not cutting the check anymore.

There are a few precedents of technology corporations taking over competitors. The Sprint acquisition of Nextel was one such monumental failure of a purchase. Sprint, with a mindset to use Nextel’s failing network (famous for the push-to-talk walkie-talkie fad) to expand their own network, and hopefully boost their customer reach and better overall service, literally dropped like a rock after reeling Nextel in. After reaching a 52-week high of ~$24 a share in stock value just after the purchase (which falsely boosted investor confidence), Sprint Nextel has plummeted to the point where, just the other day, Sprint announced they are writing off most of Nextel’s purchase value (near 30 billion dollars). Check out their one year stock performance:

This doesn’t necessarily mean that Microsoft will tank if they buy Yahoo!. If they manage to work on Yahoo!’s search algorithms and promotion, and refine advertising stances as well as vastly improve Yahoo!’s publisher advertising network (which is still in BETA even after years of development), they might have something which could potentially take a chunk out of Google’s market (which creates most of its respective revenue from the Adwords/Adsense program as well as sponsored search results).

Lets not forget, however, the main difference between Microsoft and Yahoo! structure: they operate and create their main revenue from two totally different markets. Microsoft has been for years developing and producing a tangible retail product (Windows, of course), and successfully selling it to billions of consumers all around the world. Microsoft has a solid growth plan with multiple layers of fiscal protection, not to mention it’s backed by the richest man in the world, Bill Gates. Sure, Microsoft has been also spending R&D money on improving their presence on the Internet, but so far, all progress has proved lackluster. Heck, the only reason “Live Search” gets any traffic is because IE’s homepage is MSN.com. When a monopoly still fails to compete against Google, you know you’ve got some issues.

Microsoft’s budget appropriation over the past few years has been extremely poor, and their innovation in the world of technology has been near nil. The Zune was poorly accepted by public as it featured no major incentives for iPod users to switch over (not to mention the branding factor that Apple’s marketing dept. did a hell of a job on, which Microsoft utterly failed to reproduce), Vista was void of any real-world improvement to give corporations a reason to re-train staff and spend thousands on new licenses for PCs, and various web ventures like Live.com failed to even barely entice Internet browsers to change their homepage from Google. IE 7? A joke compared to FireFox, king of the browsers in this day.

If I were Bill, I’d be wary of this deal. $44.6 billion dollars is a lot of money, especially for a web-based company. The web bubble continues to grow with each and every over-priced dot com sale. The poor spending habits as of late will surely come back to haunt them in the distant future. Microsoft surely won’t go out of business, but they may be in for some hard times ahead if they go through with this deal. Don’t say I didn’t warn ya.

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