Wednesday, August 12, 2009

Stop making sense

I've been thinking about two high profile, yet unrelated transactions that took place in the past 30 days in the Internet. The Yahoo/MSFT licensing deal and now the Facebook/Friendfeed acquisition. Here's my thoughts:

Yahoo/MSFT

As a Yahoo shareholder I was initially quite disappointed with the terms of the transaction. Like many others, I hoped for much more. However, the reality is that Yahoo search was a depreciating asset. The operation did not have the vision to change the playing field (e.g. Wolfram Alpha), was mired in a distant second market share position, and despite the most public display of being for sale, had no other visible bidders. I believe the management/board team has rightly decided to do a final harvest of the fruits of the 'last war' and clear the decks for the next battle(s). Too bad there was not a 'boat-full of upfront cash, but this outcome is more a reflection of the market value, rather than lack of trying to maximize, or will to do a transaction.

Realistically, the company is way too far behind in the current market 'sweet spot', namely real-time and social. Let alone invisible in exploring, let alone taking early market stakes, in other emerging markets. Hopefully, with the search transaction now behind them and a rebuilt management team at the helm, the team can focus on building going forward value for shareholders by bringing together innovation and its audience reach.

Facebook/Friendfeed

I am a believer that when markets develop, initially best of breed vendors take early leads. Later, firms which combine their initial market share, with a product vision which expands their offerings to serve more needs for their customers, emerge/remain market forces. In the last couple of days, Facebook has aggressively signaled its intent to expand its service through incorporating real-time, adding more user requested social features, and introducing an alpha version of Facebook lite. These are important and timely additions as they simultaneously fend off competition from below (Twitter), and from established vendors who will surely mount spirited counter attacks (Yahoo, MSFT etc).

I suspect the M&A market will shortly heat up for a select few of the innovative social vendors and their shareholders.

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