Microsoft Is Already Thinking About Integrating Yahoo
While Yahoo looks for ways to thwart a Microsoft takeover, Microsoft is already planning to integrate Yahoo. In an interview Sunday, Ray Ozzie, Microsoft's chief software architect, told the Financial Times that the company will take its time, even if it means delaying potential shareholder benefits.
"Technology companies, if they dive in and just smash things together for smashing them together's sake, it's reckless, it's just simply reckless," Ozzie told the Times. "They have a number of different types of technologies. They have their own corporate culture."
Realizing the Synergies
Microsoft bid $44.6 billion for Yahoo in late January. Yahoo's board unanimously rejected that offer and said it would not even consider discussing an acquisition unless Microsoft antes up at least $12 billion more.
But Microsoft has persisted. Ozzie, who took the software reins from Bill Gates in 2006, is optimistic that the company can achieve its goals without rushing integration. He wants to avoid disrupting Internet users and advertisers rather than grabbing financial and other benefits from the consolidation.
As Microsoft sees it, the merger would create a more efficient company with synergies in four areas: Scale economics from audience size and increased value for advertisers; accelerated innovation from combined engineering talent; operational efficiencies by eliminating redundant costs; and innovation in emerging user experiences such as video and mobile. Microsoft believes these could be worth at least $1 billion a year.
To Integrate or Not To Integrate?
Ozzie has history on his side. A Booz-Allen study found that 68 percent of mergers fail because of poor integration. And according to a McKinsey study, only 23 percent of companies recover the costs of a merger.
"We can talk about the technology, but in the end this is a business decision," said Daniel Taylor, an advertising analyst at Yankee Group. "I'd be far more concerned with merging the financial statements rather than the technologies."
Taylor has been vocal in saying a Microsoft-Yahoo combination is not a good idea. Beyond the question of technology integration, Taylor questions why Microsoft would want to integrate Yahoo at all.
Control vs Competition
"Microsoft makes its money selling software. It has great margins selling operating software and productivity software. It seems to make its money in markets it can control," Taylor said. "The logical next step is how the company is going to make money where it is marginalized or where there is a lot of competition. That's a much more difficult question to answer."
The online advertising market where Yahoo operates is growing fast, from more than $40 billion in 2007 to nearly $80 billion projected by 2010. Today this market is increasingly dominated by Google.
"Microsoft is trying to jump from one log to another, and it's pretty slippery. The company makes about $11 billion on Windows and another $12 billion or $13 billion profit on Microsoft Office," Taylor said. "Microsoft has substantial margins built into its existing product lines. Even if Microsoft is able to grow its advertising to the same size, I still don't think the profits would be anywhere near as close."
While Yahoo looks for ways to thwart a Microsoft takeover, Microsoft is already planning to integrate Yahoo. In an interview Sunday, Ray Ozzie, Microsoft's chief software architect, told the Financial Times that the company will take its time, even if it means delaying potential shareholder benefits.
"Technology companies, if they dive in and just smash things together for smashing them together's sake, it's reckless, it's just simply reckless," Ozzie told the Times. "They have a number of different types of technologies. They have their own corporate culture."
Realizing the Synergies
Microsoft bid $44.6 billion for Yahoo in late January. Yahoo's board unanimously rejected that offer and said it would not even consider discussing an acquisition unless Microsoft antes up at least $12 billion more.
But Microsoft has persisted. Ozzie, who took the software reins from Bill Gates in 2006, is optimistic that the company can achieve its goals without rushing integration. He wants to avoid disrupting Internet users and advertisers rather than grabbing financial and other benefits from the consolidation.
As Microsoft sees it, the merger would create a more efficient company with synergies in four areas: Scale economics from audience size and increased value for advertisers; accelerated innovation from combined engineering talent; operational efficiencies by eliminating redundant costs; and innovation in emerging user experiences such as video and mobile. Microsoft believes these could be worth at least $1 billion a year.
To Integrate or Not To Integrate?
Ozzie has history on his side. A Booz-Allen study found that 68 percent of mergers fail because of poor integration. And according to a McKinsey study, only 23 percent of companies recover the costs of a merger.
"We can talk about the technology, but in the end this is a business decision," said Daniel Taylor, an advertising analyst at Yankee Group. "I'd be far more concerned with merging the financial statements rather than the technologies."
Taylor has been vocal in saying a Microsoft-Yahoo combination is not a good idea. Beyond the question of technology integration, Taylor questions why Microsoft would want to integrate Yahoo at all.
Control vs Competition
"Microsoft makes its money selling software. It has great margins selling operating software and productivity software. It seems to make its money in markets it can control," Taylor said. "The logical next step is how the company is going to make money where it is marginalized or where there is a lot of competition. That's a much more difficult question to answer."
The online advertising market where Yahoo operates is growing fast, from more than $40 billion in 2007 to nearly $80 billion projected by 2010. Today this market is increasingly dominated by Google.
"Microsoft is trying to jump from one log to another, and it's pretty slippery. The company makes about $11 billion on Windows and another $12 billion or $13 billion profit on Microsoft Office," Taylor said. "Microsoft has substantial margins built into its existing product lines. Even if Microsoft is able to grow its advertising to the same size, I still don't think the profits would be anywhere near as close."