There has been quite a bit of chatter recently about the possibility of Facebook (FB) acquiring the Bing search engine from Microsoft (MSFT). Gary Kaminsky brought this up on CNBC on Friday. Given that Yahoo (YHOO) has an agreement with Microsoft to use its search engine for its properties and is also suing/and being sued by Facebook over numerous patents; this would be a complicated initiative. However, if it could be negotiated properly it could help all three companies and pose a significant threat to Google (GOOG). Here is how this transaction could transpire and its impact on all four firms.
Possible Transaction Details
- Microsoft provides Facebook with its Bing technology in return for some consideration in additional Facebook stock.
- Yahoo allows transaction to take place and agrees that Facebook will maintain this search engine which will continue until its original agreement it had with Microsoft for its properties.
- Both Yahoo and Facebook agree to drop all lawsuits against each other.
- Yahoo receives consideration in Facebook stock. Details to be worked out with each company's legal teams depending on validity of patents, litigation prospects ... etc. ... Obviously this would be one of the most difficult parts of the transaction.
- Facebook incorporates and integrates the search engine and its technology throughout its site and organization.
Why this would be a winner for all three entities:
- Gains instant search engine technology with around 30% market share that it can leverage with all the data it has on its customers to perform more personalized searches.
- Makes it a huge competitor to Google in search along with the revenue streams that entails.
- Deepens partnership with Microsoft as now Bing and Skype will be a core part of its services.
- Rids itself of pesky patent disputes with Yahoo.
- Immediately improves earnings and cash flow as it is losing billions of dollars a year maintaining the Bing division.
- Gains additional Facebook stock of which it already has a significant stake.
- Deepens partnership with Facebook.
- Allows it to focus on areas it can better compete against Google such as smartphones, Operating systems, browsers, etc.
- Gains valuable asset in Facebook stock.
- Rids itself of a potent enemy by partnering with the social media giant.
- Eliminates legal distractions.
- Allows it to concentrate on its turnaround efforts.
What this means for Google:
- Now it will have a huge new, well-funded competitor in its core search business. One that also could also possibly build a better search engine mousetrap by leveraging the massive personal data that Facebook holds. This could threaten Google's growth and margins to its main contributor to earnings.
- It would also face a more focused competitor in Microsoft that could challenge its Android franchise more effectively. This at a time when it is already challenged by integrating its large purchase of Motorola Mobility.
- The Facebook/Microsoft partnership could evolve to deliver other threats (Ex, a Facebook phone?).
Although the difficulty of this complex and speculative transaction makes it improbable, it could be a game changer and bears watching.
Disclosure: I am long MSFT.