Archive for the ‘Finance’ Category

Microsoft Yahoo Deal: Why it is a good deal for Microsoft and Yahoo?

What a difference a year makes. Last year, Microsoft offered $40+ Billion to get access to Yahoo!’s search traffic but yesterday, Microsoft announced a deal where it got Yahoo’s traffic almost at no premium. Of course, if I were Yahoo shareholder I would be very unhappy about Yang’s decision of not accepting the offer last year.

Why it is important for Microsoft? Search is a business of scale, more people search, your product and algorithm gets better. More searchers will attract more advertisers and generates higher revenue from advertisers. With this deal, instantaneously, Microsoft can scale three times its current size, can fast forward its product development and receive higher price for its ad inventory.

Analyst estimates put Microsoft’s search division to make $600-$700M and prices for ads in is almost half (1/2 ~ 1/3) the price of Google’s. With this deal, if Microsoft catches with Google in terms of ad pricing, revenue for Bing will double with no additional cost. A value of ~$500- 600M per year for shareholders. $500M * multiple of 10 = $5Billion in value.

With help of the deal, if the product improves and brand presence improves, and captures another 4% share to grow from current 8% to 12% market share, revenue will double with disproportionately small incremental increase in investment, creating another $500-$600M (at a higher monetization from the deal) in revenue. Potentially, another $5B in value for Microsoft.

What does Yahoo get? Yahoo clearly understands if it wants to be in Search it has to fight with two 500 pound gorillas – Google and Microsoft. These two giants have almost endless source of cash to invest. Yahoo can either compete and invest tons of money in Search or it save its investment and can concentrate on its other products Yahoo portal, yahoo mail etc.

From yahoo’s point of view, Search is getting commoditized and why to invest and still fall behind? hence outsource the search to a specialist. According to Yahoo CEO the deal could “add $500 million annually to Yahoo’s operating income” and will ease Yahoo’s Capex. Over $5-7B in value for Yahoo from these savings.

Why wait till launch of it was clearly a bet from both sides. Microsoft kept its bet that will be a hit. On the other hand, Yahoo was hoping that will fall flat. In reality, did well and helped Microsoft share to increase to 8.4%. This gave Microsoft an upper hand. If continues to gain share, Yahoo will continue to lose its negotiating power. Hence Yahoo had to close the deal as soon as possible. If would have been flop and have received bad reviews, the story would have been different.

Overall, Microsoft shareholders are the winners who got something for free when they were ready to pay $44B for it a year before.

A brief comparison of Internet Payment Options

Recently,  I had to research different online payment options. Out of the box options such as Paypal, Google and Amazon compared to be same except for some minor differences. However, there were some significant differences especially in the fee structure when we analyzed an independent Online merchant account.





Merchant Account1

Transaction Fees Per Transaction

Monthly sales

under $3,000           2.9% + $0.30. $3,000 – $9,999       2.5% + $0.30 $10,000 – $99,999   2.2% + $0.30 $100,000 or more    1.9% + $0.30

Same as Paypal

Same as Paypal.

5% for <$10 transactions.

2.19 + 0.35 (base)

Volume determines pricing.

Monthly Fee

$0 at Paypal
$30 at our website



Monthly Fixed Fee: $307

Foreign Card (in addition to Transaction Fees above)




+1 to 1.3%

Authorization – Reauthorization- Capture Time limit

29 days

7 days6


Time limit not specified.2

No time limit specified for Reauthorization and Capture. 3

Shipping Fees setup





Tax Fees setup


Yes (No in built support for VAT)

Yes (No in built Support for VAT)


Digital goods transactions

Yes need coding


Yes needs coding



Yes need coding


Yes need coding


Gateway account

Buyer can or cannot have paypal account5

Must have google checkout account

Must have Amazon account


Checkout at

Paypal website

Google Website

Amazon Website

Your Website


1 Average price specified. Price varies among different merchants. Custom programming required.
2No option is given for Reauthorization.
3Reauthorization must be successful to capture funds fully.
5There are complaints that after 10 or more transactions with the same credit card, buyers are required to have Paypal account. Also, transactions from outside US at times are required to create a Paypal account. Even though, it is not explicitly written on the paypal website.
6Google gives unlimited time for authorization – reauthorization – capture cycle when their API is implemented with programming.
7Average Gateway Fees and Merchant Acct Fee