11 February 2008
by Simon Quicke
Microsoft’s move to acquire Yahoo has been seen as a straightforward attempt to catch up on ground lost to Google.
The bid of $44.6bn (£22.4bn), which will eat into the cash reserves of the software giant, indicated how much Microsoft felt it has to pay to claw back the advantage lost to rival internet and mobile applications provider Google.
The reaction from analysts was to agree the timing made sense, given that Yahoo has been forced to announce recent staff reductions in the face of declining results, but to question if Google could be seriously threatened.
Robert Scoble, an ex-Microsoft employee who blogs on the software market, said Google had been able to beat Microsoft and Yahoo individually and so could fight off a united challenge: "Put two turkeys together and you don’t get an eagle".
Other analysts were quick to pinpoint the motivation as trying to widen Microsoft’s reach into the SME market.
"Microsoft is interested in search because it provides a beachhead into businesses, especially small and medium-sized ones who don’t have a direct relationship with Microsoft. That’s Google’s real threat, the ability to leverage today’s search relationship into Google Domains and eventually, software as a service that could undermine Microsoft’s long-term position," said Charlene Li, vice-president and principal analyst at Forrester.
In a statement, David Mitchell, senior vice-president of IT research at Ovum, said Microsoft was making a move to protect revenues from its core applications.
"Microsoft’s desire is to protect the solid revenue and margin contributions from Microsoft Office. Although Google Applications have yet to make a real dent in the Microsoft Office giant, they do pose a long-term threat," he said.
"Over time the functionality of Google Applications will become progressively
richer and more complete, to the point that they will represent a real alternative. As a defence against this position, Microsoft needs to accelerate its own move into online services," he added.
