Yahoo Bid shows Microsoft on the Ropes

Ponca City, We Love You writes "One day after the announcement of Microsoft's plan to buy Yahoo, there is an interesting piece from the NY Times analyzing the reasons behind Microsoft's bid and proposing that the bid is a tacit, and difficult, admission that Microsoft did not get its online business right and that online losses continue to mount while Google makes billions in profit. Microsoft "finds itself in a battle where improving its search algorithms and online ad software is not going to be enough," writes the Times. With the Yahoo bid Microsoft is trying to buy a big enough share of the market to be a credible alternative to Google with online advertisers. "This shows just how worried Microsoft is by Google," says David B. Yoffie. "Microsoft has faced competitive threats before, but none with the size, strength, profitability and momentum of Google.""

Comments

Re:Eh?

[Dan100]

People aren't buying Windows Vista and Office 2007 because they have Windows XP and Office 2003 that does the job just fine, and possibly better, and it costs nothing to continue using it.

Please folks, RTFA. To quote:

[Last year] The Office division alone had quarterly revenue of $4.8 billion equal to Google and an astronomical $3.2 billion in operating profits. The Windows unit is even more profitable.

In fact, Microsoft's Q1 results last year were the best for seven years:

Microsoft stunned Wall Steet with its latest financial results, based on the success of Windows Vista, Office 2007 and the Halo 3 game. First quarter revenues jumped by 27% to $13.76 billion, and profits by 23% to $4.29 billion. Sales beat expectations by more than $1bn.

Microsoft dwarfs Google in both revenue and profit. It's just lost out in the online services market (where despite rising revenues it still makes a loss), and wants to catch up. To do so, it can afford to make investments nobody else can, such as buying out another huge company with a big (if not terribly profitable) portfolio of online services. Together, the "network effect" would make both much more profitable than they are operating seperately.