Microsoft's Last Big Beat: Internet Domination or Death

What can $44.6B USD mean? Well, for Microsoft (MSFT) it may mean the cost of survival.

This bid for Yahoo (YHOO) make one wonder: Why doesn't Microsoft buy some new companies instead of running after the dying Yahoo? Is $44.6B not enough to create a parallel and better Yahoo? Will the much needed integration even be possible? Will Microsoft play by the rules if it gets Yahoo? Many more such questions will be answered in the next few weeks to months as Microsoft's Yahoo bid plays out. But the most important question of all will take much longer to be answered. Will Microsoft be able to turn the table on Google (GOOG) or will it get tangled into the web it's trying to spin? Irrespective of the outcome, one thing is clear: Microsoft is ready to take the bull by its horn.

Microsoft currently has three major problems working against it:

1) Battle with Google - gateway to the Internet.

2) Guerrilla war with Apple (AAPL) - next generation devices and better software integration

3) Skirmishes with Linux - developed by the best brains and at almost no cost.

This is probably one of the most difficult times Microsoft has ever seen. All three combined were eating Microsoft from three different directions and could have put the Microsoft money machine out of gas. But, a successful bid for Yahoo alone can turn the tide in favor of Microsoft.

Given all the troubles Microsoft has, it has three things going for it:

1) Huge cash reserve - an arsenal, giving upper hand in almost all battle conditions

2) Bumper profit for next few years - effective firepower against all kinds of war games

3) Time/situation - Marketing for its current product, and above all, the monopoly of Google and the dismal state of Yahoo. (Almost) taking out regulators and Google indirectly out of the equation while limiting options for Yahoo.

The current offer for Yahoo brings out the point that Microsoft is getting ready for a direct and decisive battle against Google. Microsoft now appears to understand the rules of engagement much better than previously assumed by many, including Yahoo/Google/Apple/Linux and the shareholders/investors of various companies. Yahoo's pathetic display and lack of ability to capitalize on opportunity has given Microsoft the chance of a life time. This bid will allow Microsoft a platform and a big/critical internet presence, which it lacked to date, to take on the heavyweight and worthy opponent.

With Windows Vista out and generating enough cash for Microsoft to go about doing regular business, the decision of taking on the provocative Apple or the multi-brain-super-cheap Linux would have been costly and a zero sum game. A $44.6B bid clearly shows that Microsoft also sees the paradigm shift in computing as well as others. That it understands the shift towards cloud computing is much more real than anything else. Microsoft management should get full credit for identifying real, and avoiding needless, battles and also for making such a bold decision.

Microsoft appears to be asking the right questions and getting the correct answers for now. The bid decision shows that Microsoft is ready for a do-or-die battle. If Microsoft's bid for Yahoo goes through, it will drive out most of Microsoft's cash, but it is probably worth it as is it will buy Microsoft a fighting chance instead of letting it die a slow death. And with a Microsoft (+Yahoo) vs. Google face-to-face ahead, the final showdown promises to bring out faster technological developments and (probably) better returns to respective shareholders.

So let us all say, "Microsoft race for Yahoo!!!"

Disclosure: none

Comments

[DennisByron(Research2.0)]

At Research 2.0, we agree with your conclusion that Microsoft understands the information technology market situation well and is acting agressively to take advantage. I even go further and believe that Microsoft is uniquely positioned--because of its combination of enterprise and consumer computing experience--to stay well ahead of Oracle, SAP, IBM and Google in the enterprise category. Apple is a real threat on the consumer side and Yahoo will get Microsoft where it needs to get to respond on the consumer side faster than building something from scratch.

I caution you on your underlying assumption about Linux being developed "at almost no cost" however. IBM, Intel, Novell, HP, Fujitsu, EMC, Oracle, Sun, Motorola, and all the other sponsors of the Linux Foundation (LF) as well as many that work on Linux without belonging to the Foundation have spent billions on maintaining and updating the Linux kernel both in cash and in-kind contributions to the development effort.

If "low-cost Linux" is at all key to your conclusion, be careful. In fact, I believe relatively soon, Microsoft will become--along with Google--one of the largest users of Linux, thanking the LF profusely as it makes that transition.

[Amber]

Hi Dennis,

I understand that IBM & others spend a lot on Linux. Hence technically can not be called cheap or free. But when it come to user it is almost free and hence from Microsoft's end of the telescope it is free. And hence a hard nut to crack. It is a proxy war in which Microsoft cannot point & shoot one company.

And also I do not doubt that Microsoft is not gonna use open source in future.. b'se it a movement which is real and can not be ingnored.
But I think more bigger movement, is in Internet technology space. Hence my whole idea of my blog was to bring to the point... that one should reads between the lines here and recognize that MSFT has come in open now with its understanding that it is ready to take bold measures, to get into the Internet space in big way.

With great powers come great responsibility. And I think Yahoo is lucky to be in position it is in, but sadly they do not recognize what it means to be YAHOO!!

Amber Ved
in-my-own-view.blogspo.../