The benefits of Microsoft buying Yahoo sound good in theory - reduced costs, bigger advertiser base, etc. But this deal isn’t likely to be good for Microsoft’s shareholders (stock dropped 6% today). It’s more likely to benefit Google.

I’m still confident that Google’s going to wipe the floor with Microsoft/Yahoo. And the beatdown they’re gonna put on Microhoo will probably be worse than the one they would have put on Yahoo alone.

Here’s why:

#1 - Microsoft’s web properties consistently lose money, even though they’ve been the default homepage for millions of people for 10+ years! That’s a ridiculously large advantage which they squandered. Last year their online division lost $890 million on $3 billion revenue. Doesn’t seem like they have a knack for managing portals.

#2 - Painful Merge - Merging YSM & Microsoft Adcenter will be an expensive PITA. It’s going to suck for employees and advertisers. Expect all improvements, upgrades, and development to cease or slow to a crawl while this clumsy newborn beast called Microhoo stumbles around, bleeding money all over the place.

What will Google be doing during this time, you ask? They’ll be extending their large lead in search and working hard on other areas, like Apps and Youtube.

#3 - Adcenter’s Track Record - It’s doubtful that Microsoft can manage a search business effectively. Their decisions with Adcenter don’t exactly inspire confidence. In fact, some of them seem designed to intentionally piss off users. Check out webmasterworld’s Adcenter forum for plenty of examples.

#4 - Microsoft’s fat pockets - The exciting environment that fueled innovation in Google & others just doesn’t seem to exist in Microsoft’s search division. There’s no real motivation to innovate when you don’t have to worry about breaking even. Big daddy MS is there to pay the bills.

Despite all of this, it could still be a good move for Microsoft. It’s their only chance, a hail-mary attempt at being a big player in search. If they happen to get this thing right and execute perfectly, everyone will applaud the brilliant move. I think the opposite is much more likely.

I don’t think Google is facing a serious threat as lots of people said today. It’s a sign of desperation that Yahoo’s getting acquired at a price that equates to a P/E of 60.

Brian Caulfield of Forbes sums it up in his article Yahoo Doesn’t Have What Microsoft Needs:

Call it reverse synergy–both Microsoft and Yahoo! are weak where Google is strong, in search and search advertising.

Related:

A Messy Marriage - critical article about the buyout from Forbes

Disclosure: I own a few measly shares of Google.

This entry was posted on Friday, February 1st, 2008 at 11:09 pm and is filed under SEO, Internet Marketing, Google, PPC. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.