Microsoft to Acquire Danger While Yahoo! Rejects its Bid as Insufficient

Yahoo! Rejects Microsoft Bid

Yahoo! has announced that it is rejecting the bid made by Microsoft last week, stating that despite Microsoft offering a 62% premium on the share price, "the Board believes that Microsoft's proposal substantially undervalues Yahoo!, including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash-flow and earnings potential, as well as our substantial unconsolidated investments".

Microsoft appears to be ready to step up the fight, responding that "it is unfortunate that Yahoo! has not embraced our full and fair proposal to combine our companies. Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties". This suggests a hostile approach may be pursued.

The tie-up with Yahoo! is part of Microsoft's aim to gain greater traction in online search and services, an industry largely funded by advertising and dominated by Google, although Yahoo! has made a number of moves to challenge this dominance in the mobile world. This is mirrored by Google's aim to take a greater slice of the mobile pie by branching into developing a mobile platform that competes with Microsoft's Windows Mobile Operating System (see World: 8 January 2008: Yahoo! to Deploy Internet Services on Google-Based Mobile Phones and 4 February 2008: Upheaval in the Mobile Data Market as Microsoft Bids for Yahoo!).  

Microsoft Adds Danger to Mobile Strategy

Joining the frenzy of mobile-related announcements driven by the ongoing Mobile World Congress, Microsoft has stepped up its presence in the mobile industry by announcing that it is to acquire Danger, designer of the Sidekick handsets. Microsoft has previously had a presence in mobile devices through the Windows Mobile Operating System, sold under licence to manufacturers. While Danger partners with Sharp Corporation and Motorola Inc. to actually build the devices, it provides a standards-based hardware reference design in the Sidekick/Hiptop device, optimised to deliver mobile internet services with minimal bandwidth requirements. T-Mobile is the largest operator customer, offering the Sidekick as a T-Mobile-branded device, but a number of other operators—including Fido (Rogers) in Canada, KPN in the Netherlands, e-plus in Germany, and Telstra in Australia—have also offered the device under the Danger Hiptop name.

The obvious conclusion to draw from this acquisition is that Microsoft is set to use this as an opportunity to step up competition to the Apple iPhone. The Sidekick is a java-based Smartphone platform designed to appeal to mainstream consumers, particularly in the teenage and young adult market. While not as aesthetically slick as the iPhone, the device’s focus is on facilitating core text functions and web-browsing through a large pop-up central screen, revealing a full QWERTY keyboard. Support for Instant Messaging applications, including Yahoo!, MSN and AOL, also firmly targets the younger end of the market. The interface is designed to optimise the device for these types of functions that are heavily used by the target demographic, but likely lacks the flexibility of true Smartphone systems. At the back end, there are similarities in the level of integration with the network—Apple services such as Visual Voicemail rely on back-end servers, while the Sidekick relies on server side components to compress data and provide back-up facilities.

Outlook and Implications

As noted, Microsoft already has a strong presence in the Smartphone market through the Windows Mobile Operating System, with the recent release of the Xperia X1 by rising star Sony Ericsson—formerly a die-hard Symbian advocate—helping to meet the stated objective of increasing Windows Mobile penetration (see World: 16 October 2007: Motorola Buys 50% of UIQ Operating System from Sony Ericsson; 23 October 2006: Microsoft Aims to Double Windows Mobile Devices; and 11 February 2008: Microsoft, Sony Ericsson in Smartphone Alliance). Microsoft's other main rival, Google, took a similar strategy with the rumours of a Google phone coalescing into the release of an operating system (see World: 6 November 2007: Google Unveils "Software-Based" Mobile Phone Strategy).

This acquisition should help Microsoft to pursue two strategic strands. The first will be developing a mass-market, consumer-oriented 'semi-Smartphone' through the Danger software, services and reference design programmes. While some of the acquired technologies may feed into the full Windows Mobile platform (and vice versa), Windows Mobile will target the full functionality requirements of the professional and 'prosumer' markets, while the Danger platform targets entertainment and communication-oriented users. This could replicate the home device strategy of Microsoft. While developing the most widely used PC operating system through licensing (Windows), Microsoft has more recently moved into designing and producing mass-market consumer electronics hardware, including the Xbox, a networked hardware device with the same audience profile that could be tied into convergence with the Danger mobile platform.