Why Yahoo Turned Microsoft Down

quarterbuck writes "The NYTimes has up a great blog post that explains a bit of the backstory behind the Yahoo-Microsoft No-deal. While Jerry Yang did not want to sell the company, it is not likely that he could have said No to Microsoft, and explained it to shareholders, without the help of Google. The article gives reasons behind Google's tossing a lifeline to its biggest competitor, and the 'coop-etition' that has been going on between the two companies, which both emerged out of Stanford University."

Re:Google helped yahoo.

[ionix5891]

i dont think so

GOOG @77% > (YHOO @ 12% + MSFT @ 5%)

http://marketshare.hitslink.com/report.aspx?qprid=4 [hitslink.com]

Google - Global 77.23%
Yahoo - Global 12.21%
MSN - Global 3.27%
Microsoft Live Search 2.50%
AOL - Global 2.41%
Ask - Global 1.37%
AltaVista - Global 0.11%
Excite - Global 0.07%
Lycos - Global 0.01%
All the Web - Global 0.01%

Re:Time will tell...

[tb3]

The XBox is not yet 'profitable'. They now have a positive cash flow, meaning they are taking in more money than they are spending, but they have a long way to go to pay back the initial $6 billion investment.

Stock Market says no,

[fermion]

If we believe the stock market, and assumes that, at least in the mid term, reflects the prospect of future profit, then the reason Yahoo turned down the offer was because it was a dumb thing to do. Though it would have meant short term gains for Yahoo investors, the MSFT stock price indicates that it would have a dumb thing to do, at least in the mid term. Though a executive might have the requirement to maximize profits for investors, one can hardly argue that an executive should sell simply to maximize short term gains when a company still has long term profits. At the very least one can argue that a firm has a duty to the employees that generate a long term profit and not discard these employees simply to gain an immediate pay day for a few greedy investors.

IMHO, The interesting thing is that this was such a dumb idea that even greedy investors did not seem to want it. As soon as the buyout was proposed, MSFT stock tanked well over 10%. It regained some in the weeks after, but the biggest gain occurred when it looked like the deal would go bad, and when it became clear that Balmer was going to do the damn fool thing, the stock tanked again. Not a rousing endorsement that this deal would do anything positive. On the Yahoo side, the stock briefly spiked as some investors were looking for a quick payday, and others were looking to get rid of an investment they perhaps paid too much for, but no on really seemed to think it was a good deal as even when it seemed like MSFT might raise the bid to $37, the stock never went above $29, which seemed to indicate that investors seemed to think of this as a windfall and not a long term thing. Of course, the most interesting thing, is that while MSFT stock has not recovered, yahoo has not fallen back anywhere near the january lows.

As I see it, Microsoft was simply willing to burn some money to get some experience in a field that they are flailing in, and to knock out the competition. It was not a growth strategy, simply a way to tread water. Given that MSFT is still perhpas 20% down on the year, while yahoo is somewhat in positive territory, i imagine that this act of desperation has done more harm than good.

Re:Google and Yahoo should team up

[grahamd0]

That's an interesting conclusion there. Nowhere in the GP's post does he define "monopoly", nowhere does the GP mention "evil", and nowhere did the GP suggest that companies other than Microsoft are immune from being evil.

He was explaining merely *having* a monopoly is legal, the illegality comes from utilizing your monopoly power anti-competitively, for which Microsoft, being the most prominent modern example of a convicted anti-competitive monopolist, is a rich mine of examples.

Re:Google and Yahoo should team up

[pressman]

Actually, the /. crowd is pretty good at using the term monopoly properly. Monopolies are not illegal. MS having a monopoly on desktop computer operating systems was never illegal. It was the result of aggressive business practices.

It was when they leveraged their OS monopoly to push Netscape out of the browser market that they got themselves into a legal bind. They used their market dominating power in the field of desktop operating systems to crush competition in the burgeoning market for web browsers. They didn't have a product that held a candle to a much smaller and less cash flush competitor, so rather than create a competitive product, they bolted IE into the operating system and gave it away for free thus hamstringing Netscape's ability to compete and essentially cut off any revenue stream they had to keep them afloat.

This was a flagrant violation of antitrust law. They used the power of their legal monopoly in one market to very aggressively crush competition in a market in which they were unable to compete fairly.

There is nothing finely honed about this definition of a monopoly. Microsoft was accused, tried and convicted of antitrust violations and were basically let off the hook by the Bush Administration's DoJ.

If Google tried to acquire Yahoo! or Apple tried to acquire Adobe, trust me, you'd see Microsoft screaming ANTITRUST VIOLATION so loud, we'd all go deaf. And they'd probably be justified in those claims as either of those acquisitions would really radically change the face of the software world.

There are very few companies in the world that wield a level of monopoly power even close to what Microsoft has. I can't think of a single software company that even comes close.

For all intents and purposes, Windows runs the world's computers. Like it or not. Entire industries... not just individual companies... but entire industries are tied into MS wholesale and if MS wants to change the game on these people, they either have to take it, or suffer some very serious growing pains switching to OSS alternatives or Apple alternatives. Transitions which can devastate a company. The companies that are voluntarily doing this... bravo. Smart bunch!

That is A LOT of power and the potential for abuse is huge and MS has proven they are not above abusing that power. They have been tried and convicted for it already. There is precedent, but a lack of enforcement.

Re:Google and Yahoo should team up

[MightyMartian]

It was when they leveraged their OS monopoly to push Netscape out of the browser market that they got themselves into a legal bind.

Well, actually, they first got into trouble when the DoJ began investigating their OEM agreements in the early 1990s, and it was discovered that Microsoft was in fact penalizing, or at least threatening to penalize PC manufacturers who wanted to ship alternative operating systems by charging them much more for DOS and Windows licenses than those manufacturers who basically guaranteed the only operating system that would be shipped out on their PCs would be from Microsoft. That's the origin of the Microsoft "tax", which so far as I can tell, the DoJ never managed to get rid of.

Re:Google and Yahoo should team up

[westlake]

Microsoft was in fact penalizing, or at least threatening to penalize PC manufacturers who wanted to ship alternative operating systems by charging them much more for DOS and Windows licenses than those manufacturers who basically guaranteed the only operating system that would be shipped out on their PCs would be from Microsoft.

The question remains, what alternative operating system?

CP/M 86 was the high priced spread.

The competitively priced DR-DOS doesn't ship until 1988.

In 1991 DR-DOS and WordPerfect fall to Novell - killing two birds with one stone.

Windows 3 was running at full throttle before OS/2 pulled out of the station. IBM still thinking in terms of the retail box.

While the OEMs and retailers who paid the Microsoft "tax" were crying all the way to the bank. The economies of scale in manufacturing, sales, service and support made it worth every penny.