Remember when I told you that Microsoft offered $44.6 Billion for Yahoo? Just read an excellent article on FT.com on why Microsoft had to made the offer they did. It's a subscription site so here's the article;
Damned if you do, damned if you don’t.
Microsoft has a good chance of making a hash out of buying Yahoo. Assuming it wins control of the internet company – and it is hard to see it failing to do so unless regulators intervene – the management challenge will be huge.
Yet Microsoft has to try. The offensive arguments are clear. The software giant has missed out on the internet growth wave surfed by rival Google, and to a lesser extent Yahoo. Buying the latter would give it a fighting chance of tapping into that huge, relatively new, and still fast-expanding, internet advertising market.
There are also defensive arguments. Microsoft needs a stronger internet presence to protect its broader software franchise. More and more computing power is likely to move to the “cloud”, where software programmes are run centrally and delivered as a service to internet users. Google, for example, with its huge user base can unleash a new software service on millions of users at the flick of a switch and make advertising dollars from the resulting internet traffic. Microsoft’s software business it still more focused on big upgrade cycles to Windows and Office. These are slow, costly and likely to come under increasing scrutiny as regulators frown on new services being bundled into them.
Microsoft needs a big internet audience as a shop window for new software services, which it can fund through advertising revenues. Also, it wants a hedge in case computing power shifts to the cloud more profoundly than Microsoft expects, undermining the importance of desktop software. If its big monopoly franchises really do start to erode, it will be vital to have a strong position in the software delivery system of the future: the internet. Having lacked the branding and media savvy to build that in-house, Yahoo is the only real option left.
Here's a link direct to the article if you are an FT.com subscriber.
UPDATE: This is now looking pretty irrelevant since Yahoo! are going to reject the offer anyway!
