Feb 4, 2008 114 reads by Navneet Kaushal

Since, the attempt by Microsoft to take over Yahoo! has been third in the series of such efforts, and this one being perhaps the most powerful bid, what rationale does Microsoft have to purchase Yahoo!. Recently, Microsoft's Kevin Johnson, the president of the company's Platforms and Services Division answered many questions in the Seattle Times post.

Kevin's answers suggest that the takeover is a move to bring in more value to its stakeholders (shareholders, customers, advertisers, publishers etc.) in addition to creating career opportunities for the employees of both the companies. Moreover it would give an alternative to a dominant player in the industry.

To compete better Kevin opines, “the fact is that this is an industry where scale matters and by combining our resources with Yahoo, not only are we able to achieve scale economics, we're able to expand the R&D [research and development] capability, capture operational efficiencies and focus on new user experiences."

Since Microsoft as well as Yahoo! have been losing out share to Google, so would combining two losers together make things better? Kevin retorts by saying that it's scale that matters. The scale would lead to efficient operations, savings of costs in terms of duplicate capital costs, (e.g. servers and data centers, infrastructure). And with the increased R&D capability they would be able to focus on a wide array of products. The last rationale pertains to utilizing the workforce, at present only one team of engineers takes care of "search indexes and core search relevance," as well. With the increased workforce they would have the ability to make two teams of engineers, wherein one would manage the existing services and the other could work on bringing in "innovations in search — search verticals, new search user."

As far as integration is concerned, Microsoft's done that in the past with aQuantive and Tellme so it's experienced. With Yahoo! It could be a bit different as both the companies operate similar lines of Internet services, so in this case “a joint team of Microsoft leaders and Yahoo leaders who are going to work through a thoughtful integration process to make the decisions on how this lands.”

When quizzed about any layoffs coming out of the deal, the answer wasn't direct however he pointed out to having the right number of people in the right places. The cultures of the company can be integrated because “a common passion for innovation and creating opportunity and great user experiences through technology.” is something that both companies share.

The integration process would begin from the very first day and that “Some of the thoughtful decisions that will be made is sort of
the timing of when and how things are sequenced.”

While he agrees that there is a risk of spending so much focus on integrating the two companies that they won't quickly get some of the benefits. But that's not true for all the benefits, some would come quickly (viz. such as video, mobile services, social media, social platforms) the others would come over a longer period.

Does this move also make Microsoft vulnerable to land up in an antitrust regulation soup? Kevin is confident, no, as “We've worked closely with our legal counsel and we are confident we can obtain all necessary approvals in a timely manner.” If all things go well then the latter half of the calender year is the time when it will close.

Navneet Kaushal

Navneet Kaushal

Navneet Kaushal is the founder and CEO of PageTraffic, an SEO Agency in India with offices in Chicago, Mumbai and London. A leading search strategist, Navneet helps clients maintain an edge in search engines and the online media. Navneet's expertise has established PageTraffic as one of the most awarded and successful search marketing agencies.
Navneet Kaushal
Navneet Kaushal
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