Microsoft and Yahoo: Mergers and Other Options - Is a Buyout Necessary?
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While the numbers make a buyout look sensible, anyone familiar with the vastly different cultures at the two companies must be shaking their heads. Yahoo co-founder Jerry Yang is said to dislike Microsoft so strongly that he avoids using their products. A purchase of Yahoo by Microsoft might encourage many top Yahoo employees to leave the company.
There's also the fact that the Internet is still only one very small of what Microsoft does. To Yahoo, it's life itself. Henry Blodgett, in his Internet Outsider blog, makes an excellent point about the friction this could lead to: "Why would the best Internet talent want to work in a small division of a massive company, kowtow to Windows/Office kingpins, and get paid in stagnant Microsoft options, when he or she could become a billionaire at the next Google?"
Besides, there are many alternatives to a full-fledged buyout. Microsoft and Yahoo have certainly partnered before; at one point, Yahoo was providing Microsoft with search technology and advertising. That partnership ended last year when Microsoft went live with its own online ad system, which has failed to attract as many advertisers as the software giant hoped despite initially good reviews.
There's also a somewhat more convoluted option suggested by Blodgett. It involves Microsoft buying Yahoo but then immediately spinning off a combined Yahoo-MSN as a separate company, with Microsoft taking a minority stake. Blodgett argues that such a solution would let the spin-off "recruit the best talent, run it's [sic] own show, and, if necessary, compete with Microsoft...The company could have an exclusive technology deal with Microsoft and get first crack at all partnerships."
With Yahoo apparently unenthusiastic about a buyout, Microsoft's best bet might be simply to continuing pursuing partnerships with the search engine. It might also try to get its own house in better shape, as the Wall Street Journal suggests, by putting new management in charge of the online group, and unifying two separate groups. As things stand now, one vice president is in charge of the online services group, while a different vice president handles the technology related to that group. If both the services and technology were handled by one group, it could move more quickly to meet the challenges of the marketplace.
Next: So What Will Happen? >>
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