Microsoft played Yahoo, and they're totally playing you too
So I haven't commented on the Yahoo-Microsoft merger yet, making me probably
the very last of an endless horde of clueless people to be talking about it.
But the announcement
that Jerry Yang will be retiring as CEO reminded me that there is still
something important to say.
Quick summary: Yahoo lost the game because Microsoft set the rules.
Until earlier this year when Microsoft proposed to buy Yahoo, nobody but its
shareholders had really even noticed that Yahoo was in trouble. Really,
Yahoo was just sitting quietly in the background, trying not to get noticed,
lest people realize that they were way overvalued and going downhill fast.
People blame current CEO Jerry Yang for that situation, but that's
ridiculous; there's no sign that anybody could have done any better. Google
was eating their lunch; to make Yahoo more successful, they would have had
to beat Google. Unlikely.
Microsoft, of course, despite their zillions of dollars selling Windows and
Office, was losing the war for Internet search and advertising just as badly
as Yahoo. They had plenty of embarrassment to cover.
So what did they do? They chose to be the ones with more power, by
framing
the situation to make them look good. Brilliantly, they offered to buy
Yahoo, even though that obviously
made no sense.
From there, the media took over. A few people did notice the offer was
dumb; how could Microsoft possibly win by buying up a known-inferior company
with a known-inferior search engine? They already had their own
inferior ones! But a news article about how Microsoft, which never
makes collossally stupid business decisions, was inexplicably doing
something collossally stupid, just isn't believable enough. So the story
here has to be that Microsoft is smart, and therefore whoever they're
dealing with is stupid.
You see, the whole story was written even before Yahoo found out there was
an offer to buy them. There were two versions of the story: Yahoo is dumb
because it jumped at the first offer (who does that??), or Yahoo is dumb
because it refused the first offer (don't they know how desperate they
are??).
I imagine the conversation went something like this:
Yang: Wow, Microsoft wants to buy us at a premium over
our stock price! And here we were thinking we were over-valued. Let's do
it!
Old, Jaded Board Member: You never take the first offer. It makes
you look desperate.
Yang: But OJBM, we are desperate! Sure, we might make more
money someday, but Google's slowly killing us. There's no guarantee. If we
sell out now, we lock in the profits.
OJBM: It's not that easy. You think they just make an offer, and we
take it, and that's it? This process will go on for at least a year, and
they could back out at any time. We have to play this just right. And I
guarantee you, if we accept their first offer, they'll know it's too high
and they'll run away fast. The whole world will know we don't have
confidence, and our stock price will tank.
Yang: But the offer is already generous. If we don't take it,
they might just walk away.
OJBM: Nobody walks away in the first round just because you asked for
a higher price. Everybody knows you always ask for a higher price,
because the first bid is always low. If they walk away, then they were
planning to walk away in any case. So we're better off if they walk away
before they send in their "experts" to do their "due diligence" and
learn all our company's secrets. Microsoft frequently
kills their competitors by offering to buy them.
Yang: So we can't take the deal.
OJBM: Not yet, at least.
...
And a couple of weeks later, Ballmer "changed his mind" and decided not to
buy them after all, at any price. Right.
Microsoft never wanted Yahoo, they just wanted its market share. The
fastest, cheapest way to get there: help them die.
Steve Ballmer isn't new to this game, and Microsoft is smart. Scary,
but smart.
Syndicated 2008-11-18 17:07:20 from apenwarr - Business is Programming