Who Should Microsoft Buy? (Hint: Not Yahoo)
Posted by Peter Armstrong Wed, 01 Nov 2006 06:08:00 GMT
[Disclaimer: this is personal opinion only and NOT investment advice. Don't sue me, and don't run with scissors.]
A friend of mine recently sent me a link about yet another analyst suggesting Microsoft should buy Yahoo.
Now, I don't own any MSFT or YHOO stock, so I don't care. However, it spurred me to write what I've been thinking for a while...
The Problem:
Microsoft is, as always, fighting a multiple-front war. This time, however, its competitors aren't as useless as they normally are:
Google is dominating search.
Google just bought YouTube, so Google Video + YouTube = about 70% of online video. More domination.
Apple is shipping an excellent OS and gaining market share.
Apple's iPod has killed all comers. No, I don't expect the Zune to fare any better--and that's not because I like to stick my waxy headphones in girls' ears, it's because (1) it's not an iPod, (2) no one needs the limited music sharing capabilities and (3) it doesn't work with iTunes etc.
Sony is about to "launch" the PS3 (if you consider about ten units worldwide a launch), but in 2007 as they ship more PS3s and get a few really good exclusive games like Metal Gear Solid 4 it will be a good battle with the Xbox 360.
MySpace has enormous traffic, and they recently partnered with Google instead of Microsoft for ads.
Yep, all those problems would be solved by buying Yahoo.
Riiiiiight.
Right now Yahoo's market cap is $36.38 Billion USD. Assume Microsoft would have to pay a small premium, that would make the price about $40 Billion USD. What would Microsoft get for that?
A second-rate search engine, Flickr and del.icio.us.
Yahooooooooo!!!
Um, right.
Let's say I'm Steve Ballmer and I have $40 Billion USD burning a hole in my pocket. Who should I buy?
Nintendo.
[Full Disclosure: I own a wii bit (ha, ha, that's real original) of Nintendo stock. I'm pretty bullish on it though, so I'm not even sure if I want what I'm writing to happen.]
For one, Nintendo is currently a bit cheaper than Yahoo (its market cap is $29 billion USD). [I would be somewhat surprised if it was still cheaper than Yahoo a year from now.] Assuming that Microsoft would have to pay a fairly good premium to buy Nintendo, since the upcoming Wii launch hype might raise the stock price even further, we can pretend that Microsoft could buy Nintendo for $38 Billion USD. That would leave $2 Billion USD, so spend 1.95 Billion USD [1] to buy Facebook.
What would Nintendo give to Microsoft?
Quite simply, many powerful weapons in fighting Google, Apple, Sony and News Corporation (which includes MySpace).
How would Nintendo help Microsoft fight them?
vs. Apple: When the first version of the Zune doesn't dethrone the iPod, Microsoft could combine the Zune with the Nintendo DS Lite to produce the Zunetendo DS Lite-ish. That's not really catchy, so let's go with just "Zunetendo". It would basically be a slightly thicker Nintendo DS that had the Zune features for music. The only three things I lug with me are my iPod, my DS and my cell phone. I'd love to just carry one thing, but designing a sleek and simple interface for that might be tricky, so I'll settle for carrying a Zunetendo and a cell phone. Once Apple releases its long-rumored iPhone the Zunetendo could add similar phone features.
vs. Google and News Corp. (MySpace): The Zunetendo could include a cell-phone quality camera to take pictures and small movies. It would be seamlessly integrated with ZuneTube (a rebranded version of Soapbox which would compete against YouTube and Google Video). It would bundle a more customized web browser which had nice integration with ZuneTube and ZuneSpaces (a combination of Facebook and Windows Live Spaces which would compete really well against MySpace).
vs. Sony: The Wii has a good chance of propelling Nintendo from third place in the last generation of the console wars to first place in this one. I personally feel it will be enormously successful, which (coupled with the massive success of the DS and DS Lite) is why I bought Nintendo stock. However, eventually (in two or three years, say) HD will start to matter. This is why the next generation of Xbox 360 should be the Xbox Wii60. A sleeker design, even better graphics, bundled HD-DVD and the Wiimote and Nunchuck controllers = gaming bliss. Oh yeah, and a dead Sony. Microsoft could produce a Wii60 which was backward compatible with all Xbox 360 and Nintendo Wii games in 2 years, which is probably how long it will take Sony to get the price down on the PS3. But the Wii60 would be a Brand New Thing (and everyone loves brand new things) and Microsoft could use their cash hoard to undercut the PS3 price with the Wii60. Sony would be toast.
Possible Objections:
Nintendo wouldn't want to sell. True, that could be a problem. But $38 Billion USD would be a nice premium.
Antitrust issues. Yeah, those could suck too, but look at it the other way: there's only just over two years left of the Bush administration. Use them wisely!
[1] The remaining $50 million? That goes to me: Peter Armstrong, the new Senior Vice President of Kicking Google, Apple, Sony and News Corporation's ass :-) A $10 million signing bonus would be nice, followed by a $10 million/year annual salary for four years (which should be as long as it would take to pull this off). I live on Vancouver Island, so I would feel right at home in the Seattle rain :-)
