With or Without Yahoo! Part II
This morning I tried to read the tea leaves. I’ve been studying the stocks of Yahoo, Microsoft, and Google to see whether Wall Street knows more than Silicon Valley.
Looking at the Stocks
Not much can be said for sure. At first it looks like the financial specialists don’t know much more than we do about the probability of Microsoft winning or losing the Yahoo-Blitzkrieg:
- Yahoo went up.
- Google continues its course (falling) like nothing has changed.
- Microsoft continues its course (falling) like nothing has changed.
The fact that Yahoo’s stock has risen is intriguing. Apparently, to a financial analyst it doesn’t matter whether Google or Microsoft wins. The Yahoo stock wins in both cases. Why?
Looking at Brand Architecture
Let’s briefly look at each companies’ brand architecture and look what would happen if those architectures get radically (Microhoo!) or strategically (Yahoo & Google) combined:
- Yahoo’s brand architecture is a mess. No one knows what they have or how it’s structured. It’s one reason why Yahoo has started to decline.
- Google’s products follow a flat hierarchy that is technically and logically structured by their core competency: search. They continuously optimize the sub-menu on their start page to mirror the current state of their portfolio. The most important Google products are known to their target audience (Google Seach, Adwords, YouTube, and GMail).
- Microsoft proves its interactive brand illiteracy with the failed “Windows Live” chimera. As I pointed out several times, it is a total branding disaster. Instead of using technology to structure its portfolio (like Google), they rename strong products such as Hotmail or Messenger with a paperish top-down umbrella nomenclature.
A) Teaming Up With Google
If Yahoo and Google join forces, Yahoo will suck energy through Google’s power plug. Hopefully they’ll learn from their younger brother how to clean up the backyard. The Google-Yahoo alliance could help both companies corner and beat-up their mutual bully. Google needs a strong Yahoo to defeat Microsoft. If Microsoft loses this battle, their foul online product alias “Whatever Live”—according to M. Arrington, “a train wreckage”—will decompose at an even faster pace.
B) Teaming Up With Microsoft
Let me reassure you that a Microsoft merger willtear Yahoo apart. There is a simple brand and information architect’s logic to my argument:
- Microsoft is a mess because it’s nearly impossible for them to clean up their brand and information architecture. They continue to increase the complexity of their obsolete pyramidal structure. If they compound the pyramid with the same badly structured information architecture of Yahoo, the mess can only get worse.
- Not only do brands need an inspiring integration figure (which Microsoft lacks since Gates went), they need a clear brand architecture (which Yahoo and Microsoft lack).
So why do financial specialists consider Yahoo the only sure winner of this war between Google and Microsoft? Probably there’s some speculative trick on how to get money out of a grounded Yahoo that I don’t know about…
I’m not into these stock market things any more, but as Yahoo! shares went up after Microsoft’s bid and Microsoft shares didn’t go down faster, the offer has to be seen as “fairly priced” by the markets, else Microsoft shares should have gone down faster since the markets tend to price in any information available and threfore wouldn’t just price in the upside for Yahoo!, but also the downside for Microsoft. There has some time ago actually been some speculation about the sum of Yahoo!s parts being worth more than the whole:
http://www.paidcontent.org/entry/419-sum-of-yahoos-parts-worth-more-than-the-whole-analyst
“The fact that Yahoo’s stock has risen is intriguing.”
Really? Seems like a logical reaction to Microsoft’s hostile bid. Microsoft was ready to pay $31 a share worth just above $19 when the announcement was made. That’s a serious profit margin if the buyout happens.
Yeah, I’m going to agree with Tobie–people are investing to profit from the takeover, not because they think Yahoo is going to rebound.
@Tobie: Of course! That’s what I meant by: “Probably there’s some speculative trick on how to get money out of a grounded Yahoo that I don’t know about…” Now I know. It’s not even a trick… It’s obvious.
By the way, I know that you know, but you keep neglecting it so I feel I should remind you that the brand is “Yahoo!” with the exclamation mark everywhere even in the middle of a sentence…
Excellent analysis of the whole situation, and I love reading about these goings-on from a branding perspective over tech/corporate perspective.
However, I’m waiting to hear what how this affects your 2008 prediction for Yahoo, and/or how the reasoning behind your prediction (the exclusive advertising deals) affect the balance of these proceedings. How can/does the new acquisition of exclusive advertising contracts affect Yahoo’s standing?
Time to put your own assertations under the spotlight, if you will.
Either way, looking forward to part 3.
JA
@Yves: I know. And currently their situation is definitely dramatic enough to earn that exclamation mark in the title. But it is just too annoying…
http://www.flickr.com/groups/microsoft-keep-your-evil-grubby-hands-off-our-flickr/pool/
O: love the image if not the commentary
— Steve
Dropped in to view the redrawn map. Heh heh. Found a pleasantly cogent discussion!
How long has it been since Yahoo! founders, having hired their first employee, turned down a $2 million offer from a major corporation? I recall that first Yahoo! employee held a doctorate in anthropology and her first assignment was to organize the vast flow of Web search information into logical categories. Google started up with a better search algorithm, a “hard” technical innovation. Yahoo! started up with special attention to human cognition of the Web, a “soft” innovation. With the increasing emphasis on social websites, Yahoo! should be poised to thrive again.
The upward revaluation of Yahoo! after the MSFT offer was, as you say, a simple matter of arbitrage. There’s no proof of a “fair offer” because MSFT share price did not adjust downward, as others have suggested, though it might be proof that the market undervalued Yahoo! Meanwhile, Microsoft stock is held by institutions which are disinclined to churn the portfolio, by Microsoft’s own employees who certainly aren’t about to sell themselves short, and by numerous small investors who are “married” to the stock.
If I were a director at Y!, I’d be studying how to leverage the revalued stock. Yahoo! could expand internally or Yahoo! could make an offer for a company which would (1) enhance the position as leading banner advertiser, (2) make it harder for regulators to allow a merger with any larger competitor such as MSFT, and (3) expand Y!’s presence in radio or video or social networking, all areas which would make Y! shareholders happier with Yahoo!’s level of Internet diversification and all excellent fits with the Yahoo! “soft” corporate culture.