Non-obvious winners and losers in Microsoft Yahoo Deal

The tech community is buzzing at the news that Microsoft has made an unsolicited US$44.6 billion offer to acquire Yahoo and word is that Yahoo is actually considering it very seriously.

The potential merger has long been rumored and there are many reasons for which it could actually make a lot of sense for both companies. A question, though, remains as to who the winners and losers are in that deal. Topline, it’s clear that Microsoft and Yahoo benefit from this and clear that it doesn’t benefit Google. But who else?

Let’s look at the deal and try to figure it outs


OpenID: Only a few days ago, Yahoo announced support for OpenID, a system that allows users to use their yahoo credentials as a way to login to other services. Surprisingly, this was the goal of Microsoft Passport (now knows as Windows Live ID), almost a decade ago. A pairing between Microsoft and Yahoo could represent a major win for OpenID, especially if the partnership extends Yahoo’s commitment to Windows. One could see OpenID being incorporated with Active Directory in the future, leaving any non-openID provider in a lurch.

AT&T: Yahoo has a partnership with AT&T for IPTV. Combine that with the recent acquisition of Maven Networks, the IPTV efforts Microsoft has taken, and its relationship with MSNBC and there’s added strength provided to AT&T’s foray into the television space.

AOL: Many people would put AOL in the loser category but I think this partnership makes it a potential acquisition target for Google now, which means that Time-Warner could try to get a premium and spin-off a property they’ve had a hard time managing.


Advertising Agencies: Someone needed to build a counter-balance to Google’s power in the online space and, since any online pairing seemed unlikely, large ad buyers are the only ones that could provide that counter-balance. Now that Microsoft and Yahoo are providing that counter-balance, advertisers are going to be squeezed not by one but two giants. With two players representing more than 75 percent of all possible ad buys, the online companies will dictate terms to ad agencies and not the other way around. That window of opportunity appears to be closing for ad agencies.

However, a large enough online ad buyer could, if they standardized their platform and streamlined it to make single aggregated buys (for example, tell Google or Microsoft/Yahoo! that you will buy XX% percent of their ad inventory next quarter if they discount the rates by YY% compared to the competition) but ad agencies do not yet have enough streamlined data to be able to build risk models around such large scale purchases.  Unfortunately, IAC does not have any major partnership with the larger players in the market. It’s fight to stay in the search game appears to be an uphill struggle from now on. There doesn’t seem to be that many strategic options relating to the changing dynamics of their portion of the market.

News Corp.: A combined Yahoo/Microsoft partnership would own roughly 40 percent of the overall market for finance-related online news (according to Hitwise, Yahoo finance is just shy of 30% of the market and MSN money represents a bit over 10% ). This will have an impact on the likes of MarketWatch and the Wall Street Journal online. Furthermore, the coupling of Microsoft’s desktop money client with Yahoo’s strength in the online finance news space will be hard to defeat.

Any email provider: Microsoft/Yahoo will have almost 80 percent of the webmail market (Gmail comes in second with 6 percent). This means that any company that is trying to provide this as a standalone service will have to follow whatever direction the new entity takes.

Web 2.0 companies: With one less buyer in the market, that makes it more difficult to sell at a rick premium.

I’m sure there are many others I’m missing. Feel free to comment in the discussion thread.

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