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Monday, February 11, 2008

A higher price on Yahoo's head

Yahoo thinks they're worth more like $40. That was probably the right price a year ago. It's also a price Microsoft will probably pay. People talk about Yahoo like they're desperate, like this is the only shot Yahoo shareholders have to get paid... but frankly, in some ways Microsoft is as desperate. They've got a virtual monopoly in PC operating systems and the PC market just isn't a growth market like it used to be. Microsoft has lost more share in the last several years than Yahoo presently has.


This is a snapshot of that share loss (click on pic to be able to actually read it):



Yahoo has an enormous user base -- 248 million users at last count (though I'm sure there's quite a bit of phantom accounts in that number). And those of us who are still using my.yahoo are reluctant to make a change as it means a dreaded email address change (I wonder how long it will take before email address portability will become a requirement in the same way phone number portability is a requirement for telcos now). For the most part, the user base is somewhat stagnant -- it's not a growing property. Yahoo also comes with the #1 search engine in Japan and a sizeable stake in Alibaba.

Microsoft is also not going anywhere growth-wise in online. They pretty much lose share the moment a user figures out how to change their homepage from msn.com.

It's been suggested in the press that Yahoo will wind up the controlling entity post-merger. Uhh. Their management has been awful. They've been squandering market leadership practically the entire time Semel has been in charge. They desperately need to bring in some outside talent to run the post-merger company.

Microsoft's big hook is its operating system and desktop apps. On the land of the desktop they're an unending storm, but in the internet cloud they're just an occasional drizzle.

Yahoo should sell to Microsoft. Microsoft needs to buy them. This deal probably won't fix either company's problems monetizing online. It's more likely that Microsoft will find themselves with 6% share of the search market in 10 years (down from 30% post-Yahoo deal close) and wonder how they messed it up all over again.

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