Microsoft Corporation (NASDAQ: MSFT) has clearly indicated that it doesn’t intend to go after salesforce.com inc. (NYSE: CRM) as the software maker puts itself up for sale. That denial, though only half believed by many, had lead to a much longer list of possible acquirers. As that speculation continues, Microsoft may be looking to Yelp, the other big tech target this year.
Yelp Inc (NASDAQ: YELP) announced it was putting itself up for sale last week after the company’s disappointing first quarter earnings numbers lead to a massive drop in share value and executives decided that an independent course may no longer be the best one to chart. Most of the acquisition rumors have been centering around Facebook Inc (NASDAQ: FB), but it is possible that Microsoft will enter the fray.
Microsoft goes after Yelp
There’s a lot of reasons that might push Microsoft Corporation to go after Yelp. Despite CEO Satya Nadella’s company’s apparent dedication to enterprise software, there is a strong force pushing consumer businesses like Windows 10 and Bing, the company’s search engine. These businesses may be able to strengthen Microsoft in the long term, but right now their place inside the company is less than well defined.
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Tom Forte of Brean Capital included Microsoft in a list of 10 possible acquirers of Yelp. The company certainly has the financial resources and the tech and business expertise to handle the company, but why would Redmond want to buy into Yelp?
Mr. Forte said in his note that whether or not any of the 10 companies actually makes a bid for Yelp, investors should try to get exposure to the company. According to the Brean Capital analyst, Yelp’s position as “largest crowd-sourced local business directory” should not be written off by investors despite poor earnings.
Microsoft builds an alternate platform
The answer lies in the most recent comScore report about the search market inside the United States. Google Inc (NASDAQ: GOOG) now controls just about 65% of the entire market. Microsoft, with its partners Yahoo! Inc. (NASDAQ: YHOO) and Apple Inc. (NASDAQ: AAPL) controls more than 33% of the entire market.
Search is big business for Microsoft Corporation right now, but the company is still failing to leverage that business into the kind of cash-machine that the engineering team at Mountain View California have created. There are a couple of options for the company going forward. It can try to create a mobile ad platform to compete with Facebook an Google, or it can try to improve its search and tune it for enterprise customers.
Building an ad platform will require a new angle on the market, and Yelp may offer just that.
Microsoft goes local
Despite the promise of mobile, local advertising is still under performing on new media. Garages and cafes still use radio, newspapers and other dying forms to advertise their services, shirking the complexity and unknown effectiveness of Google.
Microsoft may be able to change all of that. Using its data analysis background and its history of giving business customers what they want, the company may be able to turn Yelp into a cash cow that improves customer relationships and sells added enterprise services on a smaller scale.
Microsoft could turn Yelp from a review platform into a service center for local business. The company that put Windows 95 and Microsoft Office into every single small business in America could do the same with cloud services, but it needs a foot in the door.
Yelp, with its well-known brand name and existing core business, could help Microsoft to do just that, but the $3.5 billion reportedly being asked for the company may be too high to attract the Redmond, Washington company.