MiNeeds Blog

The core drive behind Microsoft’s move is Google’s dominance in online advertising and search.

Advertising landscape brings together the publishers, advertisers and consumers. In a digital world where the ads are being brokered centrally through ad delivery engines, such as Google’s, the largest broker has the advantage of riding a vicious cycle.

In this blog, my partner Raed and I have been writing about the network effect in certain industries. Here’s an excellent example of the network effect on a larger scale:

One key nature of online advertising industry is its network effect: The more publishers you have, the more consumers you have access to. The more consumers you have, the more advertisers you attract. The more advertisers you have, better yields and economies of scale for all the parties…And the cycle feeds itself forming a nurturing cycle.

It’s this cycle that Google has been riding for a while, and it’s this cycle that Microsoft is trying to break into with a Yahoo deal.

Microsoft’s public disclosure of its interest to buy Yahoo at a 62 percent premium is designed to put pressure on Yahoo’s board to do a deal with Microsoft. By going public with its interest, rather than just giving up and going away, Microsoft engages in what is called a “bear hug” play.

Microsoft’s approach to Yahoo dates back to 2006 with a series of discussions on how to do partnerships. It looks like, Microsoft did not receive much attention for its discussions and took the approach of putting more pressure on Yahoo through a public offer.

If anything, dropping a public offer like this essentially means that Microsoft wants Yahoo shareholders to make the decision.It’ll be interesting to see how Yahoo shareholders will take this.

Best,
Deniz Erkan, founder of MiNeeds.com - a new way to shop local services