More on Yahoo-Microsoft
With the absurdly high Microsoft bid for Yahoo even more absurdly refused by Yahoo management, Microsoft shareholders should breathe a sigh of relief that their management's foolish move failed. Bidding far too much for too little is a commonplace in the Web 2.0 sphere, a trend that is nicely cataloged in a Slate.com article called "Yahoo-bris!" (5/5/08).
The article recounts the foolish Yahoo acquisition of two companies: blog software GeoCities ($5 billion down the drain) and Web audio company Broadcast.com (another $5 billion). And that's just the most obvious example:
Yahoo over the years has acquired a thicket of Web properties that it doesn't seem to know how to handle. Some of these-like photo service Flickr and social bookmarking site del.icio.us-are cool Web 2.0 tools that may yet find productive ways to integrate into Yahoo's broader business. Others are wooly legacies-like MusicMatch and auction sites in Asia-that no longer seem to fit with what Yahoo does.
The real point is that Yahoo is three things: a search engine that people rarely use any more; a portal, something that once made sense, but that no one needs any more; and a collection of Web 2.0 properties that are not very well geared to making serious money. Worst of all, it's hard to imagine any of the three suddenly become more profitable (we're talking about upticks in the hundreds of millions of dollars), while it is easy to imagine them getting less so.
They way I see it there are four kinds of value an acquired company can represent.
1. Companies with tangible assets like bauxite mines, soybean processing plants, or oil refineries. These will have r4esidual value whatever happens to the world economy.
2. Tried and true brands that have enormous residual power in slow moving industries, such as Kraft or Canon, Coca-Cola or Microsoft, and even GM. These can be vulnerable, but if they decline, they will do so gradually and reversibly. (GM isn't dead yet, though management is working hard at it.)
3. Unique expertise that can be replicated but not easily, such as IBM, FedEx, the big accounting firms. These too are vulnerable in a downturn, but setting up a rival will take a major and lucky campaign and a big stumble form the incumbents.
4. Companies that have no tangible products, that have brands that don't have long-term value (no one would miss them if they were gone tomorrow), and an expertise that others can (and have) replicated. Such companies can disappear very quickly.
Yahoo, needless to say is in category 4.
