(Quick musings on my lunch break.)
When Microsoft wants to compete, it acquires. (How many successful products have escaped the $7 billion a year Microsoft Research?) Apparently Microsoft wants to compete better in the world of the Internet, so it’s trying to capture Yahoo and all of those lovely page views.
As of this writing, Google Finance on Yahoo (I like the irony of that link) says that Yahoo has a market capitalization of almost $40 billion in 1.34 billion shares and a price to earnings ratio of 63.51. Apparently a lot of people believe that big profits are around the bend.
A $40 billion acquisition is a big deal, and apparently Yahoo’s holding out for more. Everyone has a price — if the board doesn’t like $40 billion, will enough shareholders like $50 billion? $60 billion? A new board might be more pliable.
However, instead of trying to make this acquisition work, Microsoft could turn its baleful eye down the street a little bit.
Chasing page views and a new market dominance in Internet advertising may not be in Microsoft’s best interest. Of course, you know that eventually every Microhoo page will have little pockets of Silverlight here and there. If the Rich Internet Application model threatens the Windows hegemony, Microsoft has to react to preserve the attractive profits of its cash cows. Right now there are two serious competitors. One is whatever HTML 5 and Ajax may produce in the next couple of years. The other is a somewhat cheaper acquisition target.
Google Finance on Adobe reveals a much smaller, choicer target, with a $19.91 billion market capitalization and 568.96 million shares. Microsoft might not even have to borrow money to make this acquisition work.
For half the price of the hostile Yahoo acquisition, Microsoft gets control over PDF (axed), Flash (axed), and Air (axed). Talk about a destination, too — there’s a long-standing rumor that the single page with the highest PageRank anywhere is Adobe’s page to download Acrobat Reader. Microsoft also gets a fair few developers who it can retrain to port Flash to .Net while they’re on the way out the door, and there’s your backwards compatibility strategy — at least for all of those platforms which have officially blessed, sanctioned, and (here’s the important part) legal-codec-supported Silverlight ports.
(Linux users, do you have the Novell SUSE Genuine Advantage?)
What Microsoft doesn’t get is a better foothold into the currently-lucrative online advertising market… but that’s the single leg of Google’s one-legged tripod. It’s difficult to see how selling ads will prolong the life of Office, however… but maybe that will give the Office product team enough time to port a few tens of millions of lines of code to the CLR.