What Should Microsoft Buy Instead?

So, now that it has $40 billion or so freed up, and an Internet strategy to revise, what should Microsoft (MSFT) buy instead of Yahoo (YHOO)?

The obvious answers, which have been much discussed, include Time Warner’s (TWX) AOL business, News Corp.’s (NWS) MySpace division and privately held Facebook. But maybe the company can make it self over with a Web 2.0 bargain-hunting spree instead.

Nice post today from Sramana Mitra discussing how Microsoft might construct itself a new Internet strategy from a series of smaller acquisitions. She proposes a $6 billion shopping spree which would create strong new niches in jobs, travel, real estate, personals and photography.

Her advice: Spend $1.5 billion on travel sites, starting with travel search aggregation site Kayak.com. Spend another $1 billion on real-estate sites, including real-estate search sites Trulia and Zip Realty (ZIPR). She allocates another $1.5 billon for jobs related sites, including LinkedIn, which she thinks is worth $700 million to $800 million, eLance and Simply Hired. She also proposes the company buy Shutterfly (SFLY), a photo site with a relatively modest market cap of $325 million, the personals site eHarmony - she figures it will got for $1 billion or so - and the social networking site Hi5.

Her takeaway: “For a budget of less than $6 Billion, Microsoft can clean up some of the current jewels of the Internet, and build itself a great management team of net-savvy entrepreneurs. Especially if these entrepreneurs can be incentivized to keep building according to their dreams, and in their respective domains, Microsoft will end up boasting the most envied portfolio of Internet properties.”

It’s an interesting theory: Assemble a strategy from the stray parts kicking around the Web. It certainly would be cheaper than buying Yahoo. But I’m not sure it would be better.

Microsoft today fell 20 cents at $29.04.

Comments

[gekko13]

How about they throw a curve ball and buy AMD...Ridiculously cheap, getting back on track...oh who the hell knows?

[Muddling Investor]

Unload MSN to Yahoo! (or to somebody interested). Microsoft will have to pay for it, but it's better than continue to lose at rate of almost a billion a year.

[Rafael Grillo]

Extraordinary article! In all the intensity of this Yahoo-Microsoft almost-deal, we might have forgotten to ask the most relevant question in the first place: why does Microsoft need Yahoo? Which is to say, how come Microsoft, with all its might, has been unable to build a relevant, coherent Web presence by itself? In part, this link to an incredible video in YouTube entitled "Microsoft Re-Designs the Ipod Packaging" explains it: www.youtube.com/watch?v=EUXnJraKM3k

Microsoft has grown to be a soul-less corporation that has lost touch with what consumers value today. Yahoo is not far behind -hence its woes-. The difference between these two companies and the portfolio mentioned in your article is that the latter includes true representatives of the Web 2.0 ethos: nimble, personal, creative, emotional. I am afraid Microsoft's corporate culture will simply smother everything it touches. It is good that the deal Yahoo-Microsotf didn't take place: most likely, it would have been another AOL-Time Warner or Sprint-Nextel.

[JabaDaHut]

Nice job ignoring the 800lb gorilla in the room. Microsoft could buy Baidu for somewhere south of $20b and get a jump on Google in China. After all, its Google is Microsoft's natural competitor and China is the next big prize. I'm surprised you didn't even mention it.

[mojobeta]

Agree with previous commentator, Baidu is the MSFT acquisition which stikes fear in the hearts of the Google founders who could never compete due to U.S./China relations and antitrust considerations. And it represents the future, while Yahoo represents the unsuccessful past.