Synergies and Economies of Scale
The deal has a number of synergies for both companies, Ballmer said, especially with regard to economies of scale. The deal would, he said, strengthen the value proposition to both advertisers and publishers and allow the two firms to consolidate capital spending. It would also combine their engineering resources to focus on research and development priorities such as a single search index and single advertising platform. "Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search and new advertising platform capabilities," he said.But, in an interesting turn of events, former CEO Terry Semel, who was replaced as CEO by Yahoo founder Jerry Yang last June, and who has said publicly he did not support a merger with Microsoft, stepped down as non-executive chairman Jan. 31. Good for Google? Some commentators do not believe the deal will actually impact Google in a negative way. Citi Investment Research analyst Mark Mahaney said in a research note Feb. 1 that "we could see a scenario by which Google would actually gain more market share due to industry uncertainty over the integration of the deal." While Yahoo was an obvious strategic choice for Microsoft or any other company seeking to gain scale in Internet advertising, given its position as one of the top three Web properties worldwide, "Yahoo's increasing challenge over the past few years has been losing market share to Google in search and market share to social networks and other Web sites in display advertising," Mahaney said. The value that Microsoft's offer placed on Yahoo "would seem to support Google's current share price," he noted, adding that a Microsoft-Yahoo combination could pose a greater competitive risk to Google in the long-term. But, in the short-term, things did not look that rosy, he said, noting that "in the near-term we'd be skeptical that search users' overwhelming preference for Google would change. And our bias is that advertisers and search marketers would only shift their marketing spend if they believed the combination was generating a more effective advertising solution - which could take a very long time to prove," Mahaney said.
For its part, Yahoo said in a statement that its board would evaluate the proposal carefully and promptly, in the context of Yahoo's strategic plans, and pursue the best course of action to maximize long-term value for shareholders.