Sunday, February 10, 2008

Y-2010, Microsoft-Yahoo vs. Google?

A few days ago Microsoft made a unsolicited bid for Yahoo for about $44B at a 60% premium over the trading price of Yahoo. Yesterday the WSJ reports that Yahoo has rejected the offer. This rejection is partly due to resistance within Yahoo to merge with the "evil" Microsoft and partly because Yahoo's board knows the game of trying to elicit a better price from Microsoft.

Steve Ballmer is certainly not going to leave it at that. I remember his energy when he spoke to us interns back in the Summer of 04'. The guy was so passionate about work that he said he is thinking about work right from the time he wakes up and shaves and through every possible time of the day! Steve is certainly going after Yahoo the best he can.

So let us assume, for the sake of simplicity, that Google and MS-Yahoo are left as the two juggernauts of the online world in 2010. While the Internet industry is highly unpredictable in that there may be another (other?) dominant players, I think it is safe to assume that Google and MS-Yahoo could acquire any rising stars before they grow to threaten the duo-poly - like Google acquired You-tube last year. The story from 2010...

For Microsoft, the key to dominating the desktop software business over the past 20 years has been a standardized and affordable platform (MS-Windows) and widely accepted applications and document formats (MS-Office) that funnel users towards adopting Microsoft products. Can Microsoft (or Google) repeat this mantra on the Internet? I don't think so. On the Internet, the platforms (web browsers and their plug ins) and the document formats (HTML and its derivatives) are heterogeneous and in some sense open - you have a choice of web browsers, media players, etc. There is even a server side open source suite available that can run all web services seamlessly (e.g. L.A.M.P - Linux, Apache, MySQL, and Perl).

Lets think about that cliche about the Internet- "Content is king". In my opinion, this is mostly true. Thats why 70% of all Internet traffic is Peer-to-peer (illegal?) content being swapped among users, and thats why Google paid $1.4B for You-tube last year. I mean, Google did not buy You-tube for the technology - Google already had Google Video. But Google didn't have the vibrant You-tube community contributing content. Worth $1.4B back then...probably worth much more today.

So its about the content. Now lets see who pulls the strings in the content arena. Obviously, the content providers! And what is their primary objective? Monetizing their content offerings. Large content providers can set up their own content portals and may not depend on MS-Yahoo or Google. But if you think about the long tail content-providers (user-generated content), MS-Yahoo and Google provide them with the platform to deliver content, and monetize it through ad-revenue, to the large Internet audience. Thankfully, these small content providers have a choice-MS-Yahoo or Google.

Round 2010, MS-Yahoo vs. Google. S/he who can provide the more compelling content-syndication service, will knock out the other.

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