On Friday Microsoft made a hostile bid to buy yahoo for $ 44.6 Billion. This is the biggest hostile take over bid in silicon valley. Here are a few facts about the deal and the companies involved.

Microsoft - It is the desktop operating systems giant with a 2007 revenue of $ 51.1 billion and a profit of 14.1 billion. The revenue of MSN is $ 2.5 billion with a profit of $ 732 million. It controls approx 10 % of the web search market. Microsoft has windows mobile operating system which is used by mobile phones. It is number 3 in online advertising space.

Yahoo - Yahoo draws the maximum traffic on the web on its website yahoo.com. It is the most dominant email service provider and has a 2007 revenue of $ 7 Billion and a profit of $ 660 Million. Yahoo has a 23% share in web search and is second only to Google. Yahoo has recently announced layoff of about 1000 employees in the Mountain View office.

Google - Google is the web search dominant player and enjoys 57% share of web search and is the dominant player in the online advertising business. Its 2007 revenue is $ 16.6 billion with a profit of $ 4.2 Billion. It is leading with a big lead in the web search and is the best placed company to cash in on the online advertising business.

Microsoft's hostile bid for yahoo clearly shows google as the dominant player in Online advertising and web search market. Microsoft is trying to combine No.2 and No.3 to compete with No. 1 Google in the Online advertising and web search business.

Here are my 2 cents on this bid and its fallout -

• Microsoft and yahoo have lot of common properties like yahoo mail and hotmail, yahoo financials and MSN money, yahoo 360 and Windows live to name a few. What will happen of these brands and businesses is to be seen. Both Microsoft and yahoo are dominant brands. Which brand of the 2 will survive ? There will be antitrust issues that will have to be ironed out before the synergies of the 2 companies can be exploited. And then there is the clash of cultures eg. yahoo is basically a media company where employees work in cubicles and microsoft is an engineering driven software maker where employees work in offices. To be able to resolve all these clashes and issues and create synergies between the 2 business is going to be an uphill task. And in the meantime Google is free to run at full speed and increase its dominance over the online market where it is already a Jedi Master.

• Google is making inroads into Microsofts desktop space and in mobile industry too with its new operating system Android. The takeover is microsoft's response to check Google's advances in these businesses. It is more of a long term move to help microsoft in checking Google's un challenged progress. Though yahoo is in financial trouble and had to resort to massive layoffs to keep looking good to investors, it still has a lot of online property and expertise that microsoft can leverage to combat the google menace. Don't forget that yahoo is the biggest online website and the most popular online place in the web. If this deal goes through then Microsoft is faced with the challenge of taming the Online gaint but is also presented with the opportunity to create a potent force to compete with google in its dominant businesses.
• Yahoo stock jumped from 19 something to 28 dollars on release of this news. Clearly in the short run yahoo shareholders and employees are winners. This presents a good opportunity for the shareholders to cash out of their money loosing positions and book some profits. They are definately the winners in this transaction.
• In response to Microsoft's hostile bid yahoo has communicated with google to see the possibility of having an arrangement with them outsources online advertising to google. Leveraging google expertise in this space may bring efficiencies to yahoo.

We will see how this bid takes shape in the days to come but it clearly marks an era of consolidation in the software industry where a few dominant players will compete with each other for market dominance. This will also make it more difficult for fresh startups and new ideas to reach a critical mass to be able to exert their presence. A common example of this trend is Oracle's take over of JD EDwards, People Soft, Siebel and Finally Bea Systems in the last few years. This positions Oracle to compete with not only SAP in ERP space but also with IBM in the middle ware space. These are extremely competitive times for the software industry and it will be interesting to see who will be the winners out of the struggle for dominance in the Web advertising Market.

These are my humble 2 cents on the event and I want to encourage readers to write their views on this significant event. Please write your comments and share your views on this.

I hope you enjoyed this post.