Why The Microhoo deal is good for startups

by Ashok Nayar


I wasn’t sure I wanted to get caught up in the hype surrounding Microsoft and Yahoo, because to be honest, I don’t think the DOJ will let the deal go through.  That being said, there is one issue that needs to be addressed.  And that’s why the Microhoo deal will ultimately be better for the startup market, better for startup hubs and better for budding entrepreneurs.

The issue that’s been raised is the sudden drop of one huge player in the acquisition market.  This is true.  With Yahoo gone, and Microsoft making the same number of acquisitions in a year, that’s quite a few companies that go un-bought that would have otherwise cashed in.   But there’s a few misnomers with this assumption.  One is that, relative to Microsoft and Google, Yahoo just doesn’t buy that many small startups.  They’ve made a few big purchases including Blue Lithium and Zimbra, but very few sub $50M deals.  So the relative decrease in acquisitions for small startups really goes unchanged.

As Marc Andreessen pointed out, qualifying a “drop” in acquisitions because one big player is gone is also moderately incorrect because the same argument uses Microsoft, Yahoo and Google as the players.  But there are over 20 big companies that have made legitimate acquisitions in the internet startup game recently.  Marc’s list includes:

  • Akamai
  • Amazon
  • American Greetings
  • AOL
  • CBS
  • Cisco
  • CNet
  • Comcast
  • Digital River
  • Disney
  • eBay
  • Expedia
  • HP
  • IAC
  • Jupiter Media
  • Liberty Media
  • Marchex
  • MercadoLibre
  • Monster
  • Motricity
  • NBC Universal
  • New York Times
  • News Corp
  • Omniture
  • Priceline
  • Publicis
  • Real
  • Sabre
  • Scripps
  • Shutterfly
  • Sony
  • Valueclick
  • Viacom
  • WPP

If we look at this consolidation from an advertising revenue standpoint, there’s no doubt in most people’s minds that ultimately Microsoft and Yahoo should outsource it’s advertising to Google.  Google delivers the best results, has the best metrics and simply has a hold on the market.  Why not outsource it and avoid all costs?  And in turn, startups will reap the benefit as the ad market scales.  As I mentioned in my post regarding the advertising recession, this will only accelerate online CPC advertising.  As long as online advertising stays in effect, you can bet your money that startups will continue to make money.

But my biggest reason as to why this will be have a net positive effect on the startup market, is because, ultimately, whether I’m right or wrong about the actual number of acquisitions not mattering, the perception will probably be there for most entrepreneurs.  But that’s a good thing.  Yes, you need an exit strategy.  But ask any real entreprenuer, they’re not looking to exit.  They’re looking to build a good company.  They’re looking to build a real company.  Flipping is an art that no one has yet mastered, and if you go into a project looking to flip it, you’re gonna come out broke anyways.  I’m confident that this perception of less acquisitions will streamline the entreprenuer and startup market to positive projects and truly innovative people.  I don’t see much wrong in that.