Microsoft & Yahoo Stalled but not Over – News Corp Enters the Fray: What it Means for Software, Advertising, & Innovation

With Yahoo shares down nearly 50%, Microsoft decided to prove the rumors true and make an unsolicited offer for Yahoo. The incredible $45 billion offer for Yahoo was designed to blunt Google’s advertising momentum, and stall Google with its recent entry in to core Microsoft businesses such as word processing.

At last year’s Wall Street Journal All Things Digital conference, Steve Ballmer said, The world-wide advertising market is a $520 Billion industry, yet only a small fraction of it is online. Their acquisition of an ad server / ad network form last year was telling, but now Microsoft wants to expand its distribution channels. That’s not all. No World Borders believes Microsoft’s dominance of Windows–platform–based applications won’t be enough to sustain the growth of the company going forward. Software as a service (SaaS) is the new opportunity Microsoft sees, and Google has the lead.

News Corp would have a different angle – expanding the search channel with social networking in MySpace, and leveraging its well-respected newspaper brands such as The Wall Street Journal.

  • Global spending on Internet advertising rose to nearly $20 billion in 2007, according to PriceWaterhouseCoopers and eMarketer.
  • Open source free software (nothing is free – you pay at least for support) means that more and more companies will innovate and move toward the relatively open playing field of SaaS.   The distribution channels are harder to control.  Just as song artists who may have been unknowns have used MySpace for visibility and iTunes for distribution, a new Ubiquitous Web linked by Semantics (see our posts on the Semantic web and applications of semantics) will enable a renaissance of SaaS innovation.
  • SaaS promises to cut licensing cost and make use of software universal, rather than tying it to a particular PC or server. No World Borders believes that as Saas permeates web sites, this development will help improve collaboration, collective intelligence, empower sharing of information tools with global populations. Even traditional enterprise software will have to compete with SaaS, with new market entrants such as Coghead, providing asset management and other tools via SaaS. This will mean more competition for Oracle, SAP and other firms who will either innovate toward more SaaS or acquire companies such as Coghead in the future. Big companies like SAP have launched DNA, and Oracle is pushing OnDemand. For big companies, they have to move carefully so as not to blow up their multi-billion traditional software businesses.
  • Those economies and demographics that have not had access to expensive Windows based systems will increasingly have access to faster internet connectivity, thus giving them access to Saas. It will lower the barriers to new products and services being viable. Analytical tools, communication techniques, and the ability to publish blogs and web sites reach more people, it will further the proliferation of empowerful individuals and small groups publishing information to the web. A renaissance of creativity and innovation will emerge with the best ideas coming from the best minds, rather than the largest corporations.
  • Social networking usage has recently dropped. News Corp, fundamentally driven by an advertising model, would be challenged with the combination which assumes even more advertising revenue. The amount of time the average person spends on a social-networking site has dropped 14% over the last four months, according to Internet research company comScore. The reason: they’re turned off by too much advertising on social-networking sites.

Microsoft’s attempted acquisition of Yahoo, a key gateway to finding new ideas on the web, is a mixed development for innovation and advertising. As a gateway to innovation, Yahoo will be molded into something to protect Microsoft’s core business, rather than be a free-thinking destination for innovation. Fortunately, Google has enough market share that Microsoft and Yahoo plus MSN do not pose a complete monopoly for the marketplace. As a fierce competitor to Google, Microsoft and Yahoo’s competition will likely cause price erosion in paid search advertising and ad placement.

News Corp (parent of the Wall Street Journal) may actually have a more innovative plan between its well-known content assets in news, and the social network momentum of MySpace, but it will have to be careful in the rapidly maturing market about how advertising is presented to users.

Michael F. Arrigo

Michael Arrigo, an expert witness, and healthcare executive, brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health I.T., and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations that provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and billing, fraud damages, and electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, malpractice, and insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software S.A. (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for the top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls I.T. audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto-economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and published in Healthcare I.T. News. Mr. Arrigo serves as a member of the board of directors of a publicly traded company in the healthcare and data analytics industry, where his duties include: member, audit committee; chair, compensation committee; member, special committee.

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