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Microsoft-Yahoo deal would make sense, says Gartner

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Although some challenges would inevitably accompany a possible Microsoft-Yahoo relationship, Gartner believes such a move would be positive for both companies. 

Responding to Microsoft's bid to purchase Yahoo for $44,6-billion, Gartner comments that only very large companies with a high level of cash flow can engage in the "megacloud" business – the bringing together of powerful market forces to benefit from their synergies.
"Google and Microsoft both have the money and the ambition to compete in such activities during the next few years," the research organisation says in a statement.
"Other, smaller, vendors like Yahoo, Amazon and Salesforce.com that also want a piece of the future opportunity face pressure to ally themselves with or combine to compete with the 'megavendors'.
"While Yahoo benefits from its closely focused business and already interoperates with Microsoft, Yahoo also likely realizes the challenges of being a standalone business and sees that some type deal with Microsoft now (rather than later) may offer advantages."
The organisation adds, however, that a deal between Microsoft and Yahoo would pose some challenges.
"Microsoft views the megacloud business as part of its  op-level strategic goals, but also likely realizes that it is unlikely to ever top Google in advertising and search.
"However, advertising and search are excellent potential cash flow generators. Microsoft must stay engaged in this area to diversify its revenue and limit Google's expansion.
"Microsoft must 'take the fight to Google's neighborhood' while limiting the drain on Microsoft management."
Antitrust laws are also a concern with any deal of this size, says Gartner – more so in the European Union than in the US.
There could be other companies eyeing Yahoo's assets, Gartner adds, citing rumours of a Google-Yahoo relationship recently as well as talk of synergies with AT&T, Comast, Time Warner and Verizon.
Microsoft itself has traditionally been erluctant to spend big sum to acquire or make deals with companies like DoubleClick, MySpace, YouTube and America Online, Gartner points out.
"Thus, the presumably higher price placed on Yahoo –  whose market capitalisation exceeds $40-billion – is likely a major factor in determining what type of deal makes the most sense.
"Other creative arrangements are also possible, such as a joint venture or other kind of structure. Nevertheless, coming to terms is likely to be a challenge."