The raison d’être for Microsoft’s offer to yahoo share holders is that, together, Microsoft and Yahoo will be able to make an impact on Google’s dominance in the internet advertisement market. Other elements supporting this takeover are, together, Microsoft and Yahoo will be able to stand up to the power of Google in search Engine market, together Microsoft and Yahoo will be able to stand up to Google App’s etc.
Most of these arguments are fallacious because of a very simple reason. This is a marriage thought up to generate business efficiencies, with out, a compelling end user benefit. The argument goes, together Microsoft and Yahoo will be able to offer an alternative to the Internet Advertising community which will decrease the dominance of Google.
In all the excitement of this news, every one seems to miss an extremely important point. Google’s dominance of the internet advertisement market is because it dominates search market in the first place. Considering that even if you consolidate all the other players in this market, the resulting entity wont be able to come any where close to Google’s market share, a merger between just Microsoft and Yahoo does not go any where near challenging Google’s dominance of this market.
The reason Google dominates internet advertising space is because it has the technology. People search on Google purely because it provides better quality of results and does so fast. It also places paid results but they are clearly marked as such. End user will click through a paid result not because it is indistinguishable but rather because the result is close to what is being searched for.
Even if Microsoft and Yahoo merge, the technology will remain the same. There is no incentive for the end user to shift from Google and go to either Yahoo or Microsoft to search the web. Since a merger will not change the market (either in terms of expanding the market or in terms of increasing the merged entity’s market share) it will not change the domination of Google.
A second argument for the merger is that it will counter Google Apps. This is an even more esoteric argument. Straight off the bat, Google Apps is not yet in full production and there is no saying how it will evolve. A lot of uncertainty still exists with respect to questions like, what the market is, how will it react, what will be the revenue’s generated out of it and so on. Given this situation, to argue that Microsoft and Yahoo will compete with Google on Web based office productivity suite is far fetched at this point.
On the other hand, considering the corporate cultures of Microsoft and Yahoo a merger will take a lot of work, with out much bottom line impact for quite some time in to the future. One very important aspect of IT industry is that most companies are only as good as its median employee is. Yahoo being an Internet company and Software on the web being its product line, significant employee departure will impact of the bottom line much more compared to what a merger with Microsoft may achieve.
Given that both Microsoft and Yahoo being large organizations, any merger will involve organizational and cultural clash which in fact will have an negative impact on the revenue’s of both these organizations with the probability of the impact being higher on Yahoo being greater.
Thus, despite Wall Street being all for it, this is not a win – win deal for Microsoft and Yahoo. The question at this point would be, to assess the negative impact of such a deal on both of these organizations.
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