Since Southern Indiana Web Works is devoted to web development and online marketing, it only makes sense to analyze the news this morning of Microsoft’s offer to buy Yahoo! Rumors had been going around for awhile and many in the industry were hoping for a rival to Google, but now the offer is on the table.

Will it happen? (read: Will Microsoft actually buy Yahoo!).

In my mind, the answer is yes - with about 90% certainty. The reasons are fairly straightforward:

Yahoo is in T-R-O-U-B-L-E with their current stock valuation - The world has now truly started to put a number to Google’s domination of the search engines (and as well on Yahoo’s LACK thereof). Relevance is the mother’s milk of search engine traffic and Yahoo has seen better days in that regard by comparison to Google. They recently have been laying off employees in an industry that is experiencing double digit growth…that only happens if you lose focus -TOTALLY.

Microsoft is running out of growth opportunities to keep advancing their software and is sitting on a pile of cash. Their entrant in the search engine beauty contest is neither pretty enough to attract a majority of the eyeballs nor dominant enough to demand advertising respect. It is an “also ran” at this point in the game.

The pending “recession” (if you believe in it.) will reduce the expenditures on other marketing and advertising, but online will continue to be a growth market while print, and other media ventures struggle to compete for ad spend.

The additional factor in this is that there is a growing number of Google execs that are now fully vested…will they migrate north toward Washington state? Google countered recently with their senior management saying they have a plan to stay together for 20 years. How defensible are the non disclosure / non compete contracts that they have signed? Hmmm…there’s about a month straight of research waiting to be done there, but I am guessing that at least a few “knowledge workers” will find their way to the new headquarters.

All of this has Ballmer chomping at the bit to make his mark on Microsoft by taking on Google…He sees the ‘perfect storm’ and knows that it will never be easier than now to put this deal together. His eager nature is reflected in the size of the bid. At $44+ Billion, the offer is a significant premium (north of 60%) to what shareholder market cap currently is. Why pay that much? Because it will put IMMENSE pressure on Yahoo and their team to take the offer.

Was Ballmer smart to do it?

It is an interesting question. Time will tell, but I think the positives WAY outweigh the negatives here…even though he is only buying himself less than 25% market share in the search engine business with Yahoo and MSN combined.

Given that revenues are still acceptable at Yahoo and there are numerous opportunities for “synergy” (read: workforce reduction) when combined, I think he made a good move. THIS IS DIFFERENT THAN –’WILL IT GIVE HIM SEARCH ENGINE COMPETITIVENESS WITH GOOGLE’. I think it is REALLY hard to dethrone someone who has 70+% market share in the short run…even if you ARE Bill Gates and Steve Ballmer.

OK so there you have my initial opinion. Now for what matters…how does this affect search marketing?

Thoughts?

I will post mine tomorrow on that subject.