Pmarca: If Microsoft goes fully hostile on Yahoo(blog.pmarca.com)
blog.pmarca.com
Pmarca: If Microsoft goes fully hostile on Yahoo
http://blog.pmarca.com/2008/04/if-microsoft-go.html
5 comments
Wow, this is an incredibly well-written article. I'm looking forward to seeing what happens; each of the situations will make for interesting reading :)
I'm glad someone else said it. An article so great that you can't avoid voting it up, but is so thorough that there's nothing to comment on besides "READ THIS!"
Whatever awards they pass out for blogs, I'm voting for Marc. He seems to be in an ideal state of disinterest. He isn't concerned about blog revenues or "access" and he has strategically valuable information and experience. Yet somehow he writes the blog anyway. Maybe because he still self-identifies as a hacker, and educating the internet by posting is still part of his value system.
(That said, you can't trust much of what he says about Ning, but it is unclear how much of this is pride and how much is spin.)
Also, he can afford to do crazy things like ask a few lawyers what the likely endgames are. But you would think that the SJ Mercury would have done the same thing, and yet their article over the weekend wasn't nearly as good. Compare: http://www.mercurynews.com//ci_9073065?IADID=Search-www.merc...
(That said, you can't trust much of what he says about Ning, but it is unclear how much of this is pride and how much is spin.)
Also, he can afford to do crazy things like ask a few lawyers what the likely endgames are. But you would think that the SJ Mercury would have done the same thing, and yet their article over the weekend wasn't nearly as good. Compare: http://www.mercurynews.com//ci_9073065?IADID=Search-www.merc...
Finally! An article with some real meat to it! I wish more others were like it.
I dont know if I'm the only one, but I find it incredibly boring and inconsequential.
I'm a hacker who uses Unix on the desktop and develops web applications for a living. I stopped using Yahoo/Altavista for search when Google started up and never went back. Both of these companies are totally irrelevant to me.
It appears that MS is moving into the "red giant" phase of a megacorp where they burn all their cash making as many overpriced acquisions as possible before collapsing into a black hole.
I'm a hacker who uses Unix on the desktop and develops web applications for a living. I stopped using Yahoo/Altavista for search when Google started up and never went back. Both of these companies are totally irrelevant to me.
It appears that MS is moving into the "red giant" phase of a megacorp where they burn all their cash making as many overpriced acquisions as possible before collapsing into a black hole.
On the other hand, suppose Microsoft then raises its bid
to $33/share, and then News Corp. holds its bid at
$32/share. Could Yahoo's board still take News Corp.'s
bid in preference to Microsoft's? In a word: no. When a
board is presented with multiple offers, it can either
take the highest objective offer or it can turn down all
the offers. It cannot take an offer lower than the
highest objective offer.
The shareholders are getting paid right now. That is their long term value. Microsoft buys Yahoo, shareholders get a 50% premium on the value of their shares cash.
Like he says, if part of the offer is in stock, you can use long term projections of the value of that stock as part of the valuation. But it's unlikely Microsoft stock will fall greatly any time soon.
Like he says, if part of the offer is in stock, you can use long term projections of the value of that stock as part of the valuation. But it's unlikely Microsoft stock will fall greatly any time soon.
Well... Bill promised Windows 7 by mid 2009. If it fails as completely as Vista, there won't before much long-term value for Microsoft out of the corporate high-inertia market.
Either way, it will be fun to watch.
Either way, it will be fun to watch.
This is why I balk at public companies sporting mottos like "Don't be evil". All public companies have one and only one motto, "Maximize shareholder value". If you can carry out additional objectives, that's great, but no motto will trump profit.
I'm not saying I disagree, but consider why this may be so: you would be pretty peeved as a shareholder if the board sold to their friends for significantly less money.
"Google has a dual-class share structure that gives Larry Page, Sergey
Brin, and Eric Schmidt de facto total control over the company, and
investors certainly haven't avoided Google's stock as a result.
Yahoo does not have a dual-class share structure, and it's too late to put
one into place now.
If Yahoo did have a dual-class share structure, Yahoo's cofounders would
have been much better situated to block Microsoft from attempting a
takeover.
You can bet that this is being noticed by the founders of every technology
company that might go public from here on out."
These two classes are for public stock offerings. YC companies might choose this type once they go public. Broadly, stock in YC companies is either common like the shares for the founders, employee options, or they're preferred, which is often what investors own. There are specific benefits to preferred stock - different depending on the terms of the deal.
Control in a startup is largely determined by percentage ownership and and the composition of the board.
Control in a startup is largely determined by percentage ownership and and the composition of the board.
"If Yahoo did have a dual-class share structure, Yahoo's cofounders would have been much better situated to block Microsoft from attempting a takeover."
Great cautionary tale: Yahoo's cofounders were really smart people with access vast information resources, yet they clearly missed at least two things, which may be prove to be fatal now. I must never assume that I know enough.
Great cautionary tale: Yahoo's cofounders were really smart people with access vast information resources, yet they clearly missed at least two things, which may be prove to be fatal now. I must never assume that I know enough.
Wow, the game sure does makes more sense once you've read this scorecard.
I would comment on one statement:
Microsoft could take its $44 billion and go buy virtually every new Internet company of any consequence founded in the last 10 years...
He means "every consequential Internet company that hasn't already been bought by Google or Yahoo". That's a rather different set.
Particularly in light of the fact that Microsoft doesn't seem to be motivated by a desire to grow their business through innovation. I sense that their real motivation here is to buy a big, expensive label that says INNOVATIVE and plaster it all over Microsoft in an effort to make the company seem relevant. So buying (e.g.) three tiny, modestly profitable, innovative photo-sharing sites, along with their brilliant founders, will not do; Microsoft wants Flickr. Because Flickr has the headlines.
I would comment on one statement:
Microsoft could take its $44 billion and go buy virtually every new Internet company of any consequence founded in the last 10 years...
He means "every consequential Internet company that hasn't already been bought by Google or Yahoo". That's a rather different set.
Particularly in light of the fact that Microsoft doesn't seem to be motivated by a desire to grow their business through innovation. I sense that their real motivation here is to buy a big, expensive label that says INNOVATIVE and plaster it all over Microsoft in an effort to make the company seem relevant. So buying (e.g.) three tiny, modestly profitable, innovative photo-sharing sites, along with their brilliant founders, will not do; Microsoft wants Flickr. Because Flickr has the headlines.
while its true that a lot of consequential companies have been purchased by google or yahoo, a decent number of these companies were just the best of a group of similar apps.
microsoft could swoop in and buy the second choices and get a similar portfolio together quickly, building off of them. their portfolio might be overall crappier, but it will be similar and their weight behind it will be a serious driver.
having said that, i'd think that a big problem they might have is the burning desire to have everything built on .net, and most apps online are not build on .net.
microsoft could swoop in and buy the second choices and get a similar portfolio together quickly, building off of them. their portfolio might be overall crappier, but it will be similar and their weight behind it will be a serious driver.
having said that, i'd think that a big problem they might have is the burning desire to have everything built on .net, and most apps online are not build on .net.
If you drink the network-effect kool-aid, then 'second best' is usually the same thing as 'worthless' ... although I think the parallel existence of things like Facebook and Myspace (and AIM/yahoo chat/MSN chat/jabber) are proof that this kool-aid is probably bullshit.
As for .NET, the fact that most startups don't choose it should probably send a pretty strong signal to Microsoft that there is something wrong with it. On the other hand, the .NET team could simply be happy targeting "enterprise webapps" (non-startups), in which case there is nothing wrong with .NET, and something wrong with their acquisition criteria.
So basically, if Microsoft really wanted to pour that $44 billion into buying every up-and-comer, they need to pay attention to the team, and not the implementation, and then back that up by not forcing everything it buys to be rewritten in some Microsoft-sanctioned technology.
That is why the Yahoo acquisition has never made sense to me. Either Microsoft is going to spend inordinate amounts of time converting Yahoo's LAMP stack to it's own ecosystem (and fall way behind Google/ebay), or they are going to finally run a LAMP stack themselves, which seems to undermine the .NET ecosystem (not eating their own dogfood, etc).
Of course, they could fix this problem if they gave up trying to create a parallel, all-Microsoft stack and made their stuff play nice with everything else out there on the wild wild web (with less effort wasted on duplicating existing open technologies).
But that would require Microsoft to make the transition to providing a service (support/training/_ahem_ ad placement/etc) rather than a product (windows/office). When the product simply becomes a means to get people to pay for your service, suddenly giving the product away and making it play well with others is a great idea.
When Google was spinning out new apps every week a few years ago, everyone accused them of just running a lot of loss leaders to feed traffic to adwords. Well of course that is what they were doing. The fallacy was thinking that the apps were supposed to be individually profitable. In reality they are all just 'products' that get people to pay for the 'service' (ad placement). Of course they are going to provide all these products for free. You don't charge people for business cards do you?
Microsoft is trying to do this I think with their subscription model stuff. The problem is that they just charge too much, so there is still an incentive to get around paying. It's like high taxes provide an incentive to find a loophole, whereas low taxes are just easier to pay than avoid. If they gave away Windows and just charged some low amount for automatic updates and remote assistance, they'd probably have a workable business model there. Whether it'd be as profitable as their current model is another consideration.
Anyway, I'm significantly off topic, so I'll rein it in. Wasn't expecting my train of thought on this to run on so long. In summary, I think Microsoft is hosed unless they open up their ecosystem and play nice, and unless they find a new way to give away products and charge for services.
As for .NET, the fact that most startups don't choose it should probably send a pretty strong signal to Microsoft that there is something wrong with it. On the other hand, the .NET team could simply be happy targeting "enterprise webapps" (non-startups), in which case there is nothing wrong with .NET, and something wrong with their acquisition criteria.
So basically, if Microsoft really wanted to pour that $44 billion into buying every up-and-comer, they need to pay attention to the team, and not the implementation, and then back that up by not forcing everything it buys to be rewritten in some Microsoft-sanctioned technology.
That is why the Yahoo acquisition has never made sense to me. Either Microsoft is going to spend inordinate amounts of time converting Yahoo's LAMP stack to it's own ecosystem (and fall way behind Google/ebay), or they are going to finally run a LAMP stack themselves, which seems to undermine the .NET ecosystem (not eating their own dogfood, etc).
Of course, they could fix this problem if they gave up trying to create a parallel, all-Microsoft stack and made their stuff play nice with everything else out there on the wild wild web (with less effort wasted on duplicating existing open technologies).
But that would require Microsoft to make the transition to providing a service (support/training/_ahem_ ad placement/etc) rather than a product (windows/office). When the product simply becomes a means to get people to pay for your service, suddenly giving the product away and making it play well with others is a great idea.
When Google was spinning out new apps every week a few years ago, everyone accused them of just running a lot of loss leaders to feed traffic to adwords. Well of course that is what they were doing. The fallacy was thinking that the apps were supposed to be individually profitable. In reality they are all just 'products' that get people to pay for the 'service' (ad placement). Of course they are going to provide all these products for free. You don't charge people for business cards do you?
Microsoft is trying to do this I think with their subscription model stuff. The problem is that they just charge too much, so there is still an incentive to get around paying. It's like high taxes provide an incentive to find a loophole, whereas low taxes are just easier to pay than avoid. If they gave away Windows and just charged some low amount for automatic updates and remote assistance, they'd probably have a workable business model there. Whether it'd be as profitable as their current model is another consideration.
Anyway, I'm significantly off topic, so I'll rein it in. Wasn't expecting my train of thought on this to run on so long. In summary, I think Microsoft is hosed unless they open up their ecosystem and play nice, and unless they find a new way to give away products and charge for services.
Regarding your .NET comment, I don't think it's .NET that's the problem. It's Windows that hackers cringe with.
I would estimate that there are just as many startups using .NET than all the other languages combined. And when I say startups, I mean serious ventures; I'm not talking about some guy with a day job who writes a front end for Amazon or GoDaddy. Pretending that people don't use .NET just because you don't (or the predominance of the folks on this board) is just myopic.
what makes your estimation any more valid than the other ones?
estimations with data to back them up plzkty.
estimations with data to back them up plzkty.
> network-effect kool-aid
It's not just hand waving. I'd recommend the book by Varian (now Google's chief economist) and Shapiro, "Information Rules". Of course, the strength of "network effects" may be exaggerated in some cases. In others (eBay), they most certainly aren't.
It's not just hand waving. I'd recommend the book by Varian (now Google's chief economist) and Shapiro, "Information Rules". Of course, the strength of "network effects" may be exaggerated in some cases. In others (eBay), they most certainly aren't.
Wow, you guys can vote this down all you want, but, as they say:
"Ignore basic economic principles at your own risk. Technology changes. Economic laws do not."
"Ignore basic economic principles at your own risk. Technology changes. Economic laws do not."
I was referring to the exaggeration as the 'kool-aid'. I think network effects are self-evident, it's just that the term 'network effect' has transcended into buzzword territory. No economic principle operates perfectly in the real world, because not all people actually act rationally in the real world.
There are certainly people who hype network effects and see them as being stronger than they are in some fields. However, imperfect or not, their effects are quite real.
Call them 'positive network externalities' or 'demand-side economies of scale' if you want a different term.
Call them 'positive network externalities' or 'demand-side economies of scale' if you want a different term.
Theoretically, except you can't force a private company to sell, unlike one that has gone public.
Things to remember (and do, if it ever comes to that with your startup):
"Many public companies have a "staggered" board, where some directors are up for election or reelection each year, but the entire board is never up for reelection in a single year."
"A dual-class share structure is when a company's founding managers or investors own a different kind of stock that gives them voting control of the company even when they don't own a majority of the total shares."
"Many public companies have a "staggered" board, where some directors are up for election or reelection each year, but the entire board is never up for reelection in a single year."
"A dual-class share structure is when a company's founding managers or investors own a different kind of stock that gives them voting control of the company even when they don't own a majority of the total shares."