Will Microsoft's Yahoo! Bid Benefit Developers?
Microsoft’s proposed Yahoo! acquisition could be good news for developers, analysts say.
Microsoft moved to make one of its biggest-ever acquisitions on Feb. 1 with an unsolicited bid to purchase Yahoo! Inc. The Redmond software giant offered $44.6 billion for the Silicon Valley-based Internet company.
Microsoft's offer came in a letter from CEO Steve Ballmer to Yahoo!'s board of directors. Ballmer proposed acquiring all of the outstanding shares of Yahoo! common stock for $31 per share, which represents a 62 percent premium above the closing price at the time.
That Microsoft is making this offer to better compete with Internet search juggernaut Google Inc. seems clear. In a statement about the offer, the company notes that "the market is increasingly dominated by one player, who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative."
Yahoo! responded to Microsoft's offer with a brief statement that its board "will evaluate this proposal carefully and promptly, in the context of Yahoo!'s strategic plans, and pursue the best course of action to maximize long-term value for shareholders."
The company rejected a similar offer a year ago.
Yahoo! shook Silicon Valley earlier this week with the announcement that it would lay off 1,000 of its 14,300 workers in an effort to cut costs. It was the biggest layoff announcement by Yahoo! since the high-tech bubble burst.
If this acquisition goes through, it'll be good news for developers, says Jeffrey Hammond, a senior analyst at Forrester Research Inc.
"Microsoft has always put a very high value on developers and keeping them engaged in order to win its platform battles," Hammond says. "I expect them to bring that kind of focus here. The APIs and the in-the-cloud part of Yahoo! combined with Microsoft's developer focus and understanding of what it takes to get developers to invest in your platform -- that looks like a good combination to me."
A merger would also complement Microsoft's evolving Software plus Services (S+S) strategy, Hammond says. S+S is a concept Microsoft has been talking about for some time. At the highest level, it's about making Microsoft's existing business model-selling enterprise/consumer-deployed software-relevant in the face of the growing popularity of hosted software, whether that is Salesforce.com or Google Apps, which are accessed on a subscription/ advertising basis.
"If they're able to complete this deal, it puts that much more meat on the Software plus Services bones," Hammond says. "If they extend what they've done with Live, for example, into the Yahoo! space, and add all the premium services that Yahoo! already offers -- things like domains and widgets -- I think the merger would reinforce that Software plus Services vision."
The merger would also put pressure on Google to offer developers more than just a set of APIs, Hammond says.
"It puts pressure on them specifically to address developers from a tooling standpoint," he says. "It's great to have a set of APIs, but if they don't make it easy for developers to take advantage of them, either with Eclipse plug-ins or development tools of their own, they lose the mainstream developers."
Challenges and Opportunities
Acquiring Yahoo! would make Microsoft more relevant to the Web-dev crowd because of Yahoo!'s strong developer community, says Neil Macehiter, research director at United Kingdom-based IT industry analyst firm Macehiter Ward-Dutton Ltd.
"The challenge for Microsoft," he says, "is that [the Yahoo! developer] community isn't using Microsoft's technology right now-it's all Flash and PHP. So I'd expect the company to work hard to promote Silverlight to that audience."
Macehiter sees little impact from the merger on the Office Business Application (OBA)-style of application development Microsoft has been promoting of late. OBAs, which are applications developed with Microsoft Office as the platform, are what Microsoft Program Manager Daz Wilkin calls "a manifestation of Software plus Services."
But the OBA pitch is aimed squarely at the enterprise space, Macehiter says.
The merger does pose a serious overall threat to Google in the medium-to-long term, Macehiter says.
"Yahoo! and Microsoft both compete with Google in search and advertising, but they do so using different technologies, much of which have been acquired rather than home-grown," he says. "Microsoft is going to have to work hard to come up with a unified platform for search and advertising, and that's going to take time. At the same time, it's going to have to maintain the strong brand loyalty to the overlapping mail, IM and other consumer-oriented services from the two companies."
And Macehiter also sees a significant "back-end challenge" for Microsoft if it acquires Yahoo!, because the latter company's infrastructure is based on FreeBSD and PHP. Microsoft went through a similar challenge when it acquired HotMail, Macehiter observes.
For developers, though, the merger is likely to be good news, says Hammond.
"The net-net is, this is great news for developers," Hammond concludes. "It puts that much more focus on winning the hearts and minds of developers, and it demonstrates what these two behemoths of the impeding cloud-computing battle are going to have to do to win."