February 8th, 2008
Microsoft-Yahoo: The end game nears; Was there an Amazon-Yahoo deal in the works?
Yahoo will reportedly have a special board of directors meeting to discuss Microsoft’s $44.6 billion unsolicited bid. Meanwhile, the game theories abound.
According to TechCrunch Yahoo’s fate could be decided today. My guess is that Yahoo’s fate won’t be completely decided, but the end game is definitely underway. The most likely scenario is that Yahoo will engage negotiations with Microsoft since there are no white knights. Here’s a look at Citibank analyst Mark Mahaney’s widely quoted scenarios for Yahoo.
Most analysis revolves around some derivative of Mahaney’s chart, but there was a new wrinkle tossed around: Microsoft’s bid could have been a preemptive strike against a potential Yahoo-Amazon merger.
Global Equities analyst Trip Chowdhry in a research note applied some game theory to figure out what Microsoft is up to. Chowdhry notes that Microsoft’s bid isn’t likely to pass antitrust muster. Given the software giant’s history with regulators I could see some antitrust hang-ups–especially if Google gets an audience in DC. Chowdhry concludes that Microsoft’s Yahoo bid could suffer the same fate as its attempted Intuit merger in 1995.
Assuming Chowdhry’s antitrust take is on target, a big question remains: Why is Microsoft bidding? Chowdhry’s writes that Microsoft’s bid may be a preemptive move to prevent an Amazon-Yahoo merger. She speculates:
Contacts tell us that Yahoo has been probably thinking of shutting down its E-Commerce offering and forming a business tie up with Amazon.com, where users could create their own Merchant Stores - similar to what Yahoo did with shutting down its Music store in favor of Real Networks Rhapsody. Contacts feel, it is likely, that these discussions could be taking a form of Amazon.com and Yahoo merger, which Microsoft probably did not like.
A year ago, I’d dismiss this Amazon-Yahoo idea as nuts. Even now it’s a bit hard to believe. But given Amazon’s move into content–DRM free music and its acquisition of Audible–a Yahoo acquisition may not be so nutty.
An Amazon-Yahoo deal would have been a disaster for Microsoft since the high-risk purchase of Yahoo is the only way the software giant can compete with Google in search. Chowdhry recommends that Yahoo hires a few game theorists to work through the possibilities regarding the Microsoft bid. May the games begin.
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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