Some may wonder why the battle for Yahoo is rolling on and on... Yahoo's shareprice has rollercoasted from sub $20 in late January to about $30 on Valentine's day and then gradually withered as Mircosoft talks collapse and then risen again with rejuvinated talks. It just runs and runs. The reasoning behind the acquisition, we're told, is related to advertising synergies. However, is that the real game here? Sure, advertising technology synergies would justify the wholesome premium over the market capitalisation, but is there more going on?
I think so. I believe that this is about positioning for the next stage of the web. Web 2.0 has seen the enabling of user-generated content and the driving of our apps to the web. The next stage is shaping up as what is being called "The Cloud". Nothing less than a battle over where our bits are processed and stored is unfolding and Yahoo, Microsoft and Google are the major protagonists. This is an order of magnitude more valuable than an advertising play. This will be a bigger phenomenon than e-commerce.
All three companies are sat on immense infrastructure investments. According to Debra Chrapaty, Corporate Vice President of Global Foundation Services at Microsoft, their Live service is adding no less than 10,000 servers per month to its datacentre infrastructure. Microsoft is building datacentres hand over fist (6 at my last count) and if the Illinois one is any measure of the rest of them, then they are a $500m capital expenditure each. That is the kind of money it takes to carve out a significant portion of "The Cloud" market... and to do it without hesitation or shouting about it. Yahoo would at the least be a shortcut to a good chunk of that sort of infrastructure, not to mention a userbase of first movers already dabbling with data storage on The Cloud with the trusted consumer brand.
I think this is one huge game of poker to see who blinks first. Microsoft doesn't want to cite this huge latent value in Yahoo, otherwise they'll hardly get themselves a bargain. Yahoo directors are trying to force Microsoft's hand and bring this objective into the open to justify their steadfastness.
Google watches from the sidelines. Happy to push up the price Microsoft pays. Safe in the knowledge that it is less in need of such a consumer trusted brand- it has one already. Happy to pick over any remnants from the fall out.
Watch this space.