A competitive and balanced industry with two search giants fighting it out to deliver better and better services to advertisers and marketers is an appealing prospect. Regrettably, that’s not what a Microsoft acquisition of Yahoo is going to deliver. An analysis of the global impact shows that the price is too high and and the delivery of an incremental presence in global markets is nowhere near as strong as needed to compete with Google as alternate and less expensive strategies would offer.
Search is going global, of that there’s no question. Many previously non-internationally focused companies are scrambling to get on the global ladder – one of the reasons why globalisation specialists such as WebCertain are expanding so rapidly.
In March of last year, Bob Ivins, managing director of comScore Europe announced that
“Internet users outside the U.S. now account for 80 percent of the world’s online population, with rapidly developing countries experiencing double-digit growth rates year-over-year.”
If 80% of the internet audience is outside the US, then 80% of Microsoft’s purchase price must reflect a stronger positioning outside the US and of the $45 investment, 80% or $36 billion is being paid for Yahoo outside the US.
A general look at the degree of overlap between Yahoo and Microsoft worldwide shows that Microsoft has a total of 42 localised search sites – where localised means that the local language is applied – and 13 English language varieties. Yahoo has a total of 23 localised search sites and 8 English varieties – but this includes 7 localised languages in India. It should be noted that Live.com also exists in a wide number of countries – including 14 where there is no MSN portal. So in general Microsoft has a much wider world spread than Yahoo. This, of course, would not matter if the Yahoo acquisition was incrementally adding a greater presence throughout the world or a greater market share.
In terms of overlap – all but 4 of Yahoo’s localised versions are competing with Microsoft – though the exceptions are interesting. Yahoo has an ‘Asian’ English portal where Microsoft does not – and Yahoo also appears in the Catalan language in Spain, in Italian in Switzerland and in Vietnam in Vietnamese. All told, not a huge advance over the Microsoft roll out. In incremental terms, the only big difference is Vietnam.
Meanwhile, Yahoo is missing from a number of locations where Microsoft has a presence including Arabian countries in English, Belgium both halves, Bulgaria, Chile, Croatia, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Turkey and Ukraine. In other words, Yahoo is absent from at least 16 countries where Microsoft has a presence and that can be summarised as eastern Europe and the Baltic states as well as Greece and Turkey.
The overlap then is quite clearly in Microsoft’s favour and from a simple presence perspective the acquisition makes no sense at all.
Could it be that the justification lies in audience shares? Back in June last year comScore released figures comparing web properties throughout Europe for the first time. Looking at monthly unique visitors, it gave Yahoo third place when combined figures across Europe were looked at – but most crucially out of 16 countries examined Yahoo didn’t manage a single second or first place and only managed to achieve third place in Ireland, Italy and Spain – a very poor result. These comparative figures give Yahoo first place in the US.
More intriguingly, Microsoft scores better. Of course this is partly due to Microsoft’s wider produce offering – but nonetheless to be the second most visited property in 13 countries beaten only Google in all cases – is a significant achievement and position to have. Microsoft actually manages to achieve firsts in those figures in Norway and Sweden! And for the record in Russia, Yandex takes the top spot.
So it would seem that the Yahoo deal is not justified by the European zone. How about South America? As described before, in terms of presence Microsoft wins here too – though Yahoo does have TeRespondo which is similar to an older version of Overture but which conveniently feeds MSN properties in south America. But the cost saving from this situation does not remotely justify the Yahoo price ticket.
It must be Asia then. Clearly Yahoo does have a strong market position in Asian coming first in Japan – a major market – and first through Naver in Korea – so there’s unquestionably a prize to go for here – though the shareholding structure of Yahoo in Japan means it’s not even clear what Microsoft would be buying. Softbank, the Japanese telecommunications group owns 41% of Yahoo Japan and has already said it will not sell to Microsoft. Due diligence will definitely be required here.
And then in China, Yahoo does have a better position than Microsoft – but it’s not exactly something to write home about coming in behind Baidu the clear market leader and Google.
Could it be that the personnel employed by Yahoo or natural search are the real attraction? Possibly, but that would mean Microsoft buying largely US-focused skills which weren’t ideal to take on the global markets effectively. So the Microsoft deal does not appear to have any really strong justification outside the US where Yahoo remains even now relatively strong.
Forgive me for saying it, but it seems like a deal driven by US egos – and not by the realities of the global world.
So what should Microsoft do with its $45 billion? First they should spend $15 billion buying Yandex which would bring them a lucrative eastern European strength. Yandex is strong because it still leads the way in search through its better use of algorithms to handle the slavic Russian languages. Yandex engineers could certainly create a better natural search tool for eastern Europe giving scope for Microsoft’s AdCenter technology to be rolled out in Poland, Bulgaria, Czech Republic, Slovakia, Slovenia, Croatia, and Serbia. Yandex is virtually a Google style search engine in many ways and is still wide open for a Google acquisition. Microsoft should get in there first.
Baidu would be a tougher nut to crack costing let’s say roughly $20 billion – but should also be on the shopping list. If that fails, they should buy up Sogou, Sina and ZhongSou as well as any other operations in China they can lay their hands on.
We still have $10 billion left and with that we should recruit the best Google engineers and buy all the smaller successful search engines such as Seznam in the Czech Republic, Voila in France, Libero in Italy, Ilse in the Netherlands and so on. And we’ll still have a few billion left for fun! Microsoft don’t do it.
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