Microsoft versus Google

By Larry Dignan -

Microsoft bids $44.6 billion for Yahoo in a deal that on the surface looks like a no-brainer. Unless Google bids too.
The logic behind a Google bid for Yahoo makes a lot of sense. In fact, Google buying Yahoo makes more sense to me than Microsoft buying Yahoo (see conference call notes and Techmeme). For starters, Google would make life difficult for Steve Ballmer & Co. And as we all know Google lives to annoy Microsoft.

Meanwhile, despite a sell-off of late Google has the stock currency and the cash to compete with Microsoft. Here’s an estimate that adds some heft to this Google as spoiler idea: Citigroup analyst Mark Mahaney said Yahoo has few options to boost shareholder value right now. Should Yahoo want to remain independent it could outsource search to Google in a move that would boost earnings by 25 percent.

The next logical question: Why wouldn’t Google just buy Yahoo? Is that speculative? You bet. Is it crazy speculation? Not at all.
As I go through the list of potential synergies with Microsoft and Yahoo the overlap is stunning in some areas. Take email–there’s Outlook, Hotmail, Zimbra and Yahoo Mail. Take ad systems–there’s Adcenter and Panama. Take ad exchanges/networks–there’s Right Media, Blue Lithium and aQuantive and probably a few more I’m forgetting. You get the idea.

Now let’s tee up Google. Google buys Yahoo and substitutes Yahoo search for Google’s. Yahoo’s algorithm is booted for Google’s. Monetization rises. Suddenly, Google has destination properties beyond YouTube. Google gets content. Google gets newspaper partnerships. Google gets more users. Google dominates display advertising with DoubleClick and Yahoo in the fold.
The overlap with Google? Not nearly as much as the Yahoo and Microsoft properties have. All Google would have to do is swap search and the deal would be accretive.
Analysts are already handicapping that Yahoo’s price tag will go up a bit–just based on Yahoo’s stakes in Yahoo Japan and Alibaba, two properties Google would love to have too. If Google bids Yahoo’s value would easily eclipse that $31 a share opening volley.