Microsoft Has Options With or Without Yahoo

Depending on who you listen to or what unnamed source you want to believe, Microsoft Corp. (MSFT) may or may not be in talks to acquire some or all of Yahoo! Inc. (YHOO). Operating under the assumption that no means no and the two sides are not close to making a deal, Sanford Bernstein analyst Charles Di Bona delves into options for Microsoft's online strategy without Yahoo!. He outlines six strategic options available to Microsoft, noting that expects the software company to pursue several of them, but not all, and that it could divulge some of its plans at a July 24 meeting with analysts in Redmond, Wash.

Option 1 is to try and disrupt or delay Yahoo!'s search advertising deal with Google Inc. (GOOG). More tactic than strategy, Di Bona expects Microsoft to pull all of the regulatory and political levers available to block or at least slow the deal. A victory would not only free up the option to go after Yahoo!'s search business again (the upcoming Option 2), but also "would possibly sully Google's aura of invincibility and perhaps even its `no evil' reputation."

The second option -- which again may or may not be currently on the table -- is to rekindle the deal to buy Yahoo!'s search business. Published reports indicate Yahoo! turned down a $9 billion offer from Microsoft for the unit, but its deal with Google does not preclude Yahoo! from revisiting a sale. Di Bona says that an outsourcing deal or outright acquisition of the business by Microsoft would address many strategic questions for the company, while also appeasing those investors and rank-and-file employees who were not keen on acquiring all of Yahoo!.

Under Option 3, Microsoft can try to chip away at Google's and Yahoo!'s lead in search. Despite not being able to secure Yahoo!'s search traffic (yet), Microsoft is likely to significantly ramp up the competitive pressures on Yahoo! as a means to secure traffic or even as leverage in potential negotiations, Di Bona predicts. Microsoft would need to put some money behind this effort, but with Yahoo! vulnerable it could be successful.

Regardless of what strategic path it chooses, Microsoft will have to build on its non-search applications. Di Bona sees this option as inevitable but hopes Microsoft defers this path while its search initiatives gestate.

Di Bona gets more creative with Option 5: Microsoft make a large, transformative acquisition, perhaps of Amazon.com Inc. (AMZN) or eBay Inc. (EBAY), both of which would boost its online presence and e-commerce prowess. However, while such an acquisition would alter Microsoft's online direction, they are largely incompatible with its software and services initiative and broader focus as a software platform company.

Finally, Microsoft can pursue acquisition of innovative startups. While obviously bolstering its product offerings, Di Bona wants Microsoft to pursue this option to distance itself from the current perception that it is an "Internet laggard looking for salvation in buying other dated and failing enterprises," while bolstering its reputation and image.

Comments

[tyneham]

One wonders if Sanford Bernstein analyst Charles Di Bona has considered why Microsoft would not avoid Yahoo, or even Google who have a massive problem with Internet click fraud which is underestimated by web-traffic auditors. The fraud is deceptively downplayed by major financial beneficiaries and their small time accomplices or affiliates. Big or not, no one is immune to click fraud. There is mounting unease over click fraud.

By some logical estimates, click fraud could be over sixty percent. However, even one percent of $90 billion of global 2008-2009 Internet ad spend is too high, mainly because advertisers are still deceived, overcharged by millions and thus defrauded every day.

Read how, for example, "Yahoo protects online fraudsters, locks out legal ethical experts," web links here tyneham.wordpress.com , del.icio.us/tyneham?se... where some cases are cited, www.networkworld.com/c... , tyneham.blogspot.com , tyneham.newsvine.com

[Muddling Investor]

Microsoft doesn't have Internet business model. Never had. Come on, company is losing close to a billion a year on the 'net! No acquisitions can change this.
Sell.

[Muddling Investor]

Sorry, misprint (yet again...). MS is losing a billion a quarter on the 'net.