Putting the Yahoo-Microsoft Deal into Perspective

Microsoft’s valuation of Yahoo!, derived through their offering of $44.6 Billion ($31/share) last week seemed like a far stretch from what YHOO appeared to be worth considering that at the time the offer hit the table, Yahoo’s stock was trading at ~$19/share.  A decent premium to say the least, but not startling considering that Yahoo! reported a market cap of over $40 billion in 2006.

At market close yesterday (2/4/2008) YHOO reached 29.33. 

Not surprisingly, Google (GOOG) shares have dropped sharply over the last few days . On 1/31/2008, they closed at over $560 and yesterday they closed at just under $496/share.

So what now?  If Yahoo! takes the bait, guys like David Filo (co-founder alongside Jerry Yang) will walk away with a healthy payout of approx. $2.4 billion.  Not bad.  More importantly though, Microsoft will eliminate a competitor in the online search and online ad aggregation marketspace and propel itself into a strong #2 spot with market share hovering around 35%, compared to Google’s +56% market share.

While I do believe that Google will retain the #1 spot and continue its growth trend at least until online usage reaches a new plateau for usability, this is in my opinion a threatening move by MS and the market’s reaction this week has been appropriate.

In terms of that “new plateau of usability”, I foresee ubiquitous gigabit Ethernet connectivity in the U.S. as being that catalyst that brings us to that plateau.  Personally, I am very excited for that day to come, much as I’m sure you are…unless you are in Southeast Asia where gigabit Ethernet has been available to the masses for several years.  In which case, you’re probably reading this on one monitor while streaming high quality video on another and laughing about how American telcos are able to stifle our progress while we celebrate 1.5 - 3 MB broadband connections.

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