BUSINESS WEEK ONLINE (JAN 20, 1999) --- MSFT TO BUY YAHOO?
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Industry leader Yahoo -- by far the largest Internet company, with a market valuation of nearly $50 billion -- is also affected by the Excite/AtHome merger in ways that for now seem mysterious. To some, Yahoo's business model has been validated by the Excite acquisition. "This deal is about content, content, content," declares Kevin Landis, manager of Firsthand Technology Leaders fund (TLFQX). "AtHome has the pipe, meaning the cable, but you have to have both sides of the coin. It's a good deal for AtHome and a great deal for Excite, because it shows that content is king." The biggest Web player with both content and distribution is America Online, which also provides a means of distribution by acting as an Internet service provider.
If Yahoo, the co-holder with AOL of the content crown, has a weakness, it's that it has no distribution capability. And it may have grown too big to partner with an infrastructure company. "No firm can buy Yahoo," says Dataquest's O'Neill. "That means that they could only have a merger of equals. But right now, Yahoo has no equals."
Unless you count Microsoft, of course. The market currently values it at $388 billion, which would make it one of the few companies big enough to swallow Yahoo. Reports that both Microsoft and Yahoo were jilted bidders for Excite have led to speculation that those two may now join forces as a mega-Internet company. Such a merger would allow Microsoft to eventually split up its operating system and applications software businesses -- which it might be required to do if it loses its court battle with the Justice Dept. -- and focus on providing Internet content. But for now, anyway, it's only a rumor.
Jaffe writes about the markets for Business Week Online
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