The high-technology world is abuzz following Microsoft Corporation's $44.6 billion bid for Yahoo! Inc. last week. The takeover is an assault on Google's dominance of the online world, and on paper the two companies make a good match. But there are plenty of reasons to be skeptical about the deal's eventual success. While Yahoo has been struggling, Microsoft too is at a crossroads as it adapts to an ever evolving digital world. The key to success rests on any company's ability to respond to a rapidly changing business environment. It is unclear if a behemoth of this size is the right solution.
Analysts had anticipated the deal for some time. Last year Microsoft made an offer that was rejected. Since then, Yahoo has shaken up its management team in response to a disappointing year, replacing its CEO with founder Jerry Yang and announcing plans to cut 1,000 positions. Microsoft said it went public with the offer — a 62 percent premium over the day's closing Yahoo price — only after private talks with Yahoo failed. The price is only a 15 percent premium over a yearlong trading average; expect more dickering over the final offer.
The immediate hope is that the merger will challenge Google's domination of online searches and increase their share of the revenue from that business. According to one study, Google has a 58 percent share of the online search business, while Yahoo and Microsoft lag far behind at 23 and 10 percent, respectively. Leadership in this field is critical as advertisers want to put their products before those "eyeballs" — they are the most targeted audience available — and will pay handsomely for the privilege.