What a Microsoft and Yahoo merger means for entrepreneurs

There will be fewer exits but more start ups for entrepreneurs in the digital world if the proposed Microsoft takeover of Yahoo goes ahead, says technology futurist Ross Dawson.

On Saturday, software giant Microsoft announced that it had made a bid for online search giant Yahoo, valuing the business at $44.6 billion.

The proposed merged company promises to threaten the market domination of search giant Google, which now has 75% of the web search market worldwide. By comparison, Yahoo attracts a 16% share and Microsoft enables about 3% of web searches.

If the deal gets through the competition regulators, it could substantially change the acquisition landscape for technology entrepreneurs, says Dawson. “Yahoo has said that it intends to buy 50 companies a year; if Microsoft buys Yahoo, that will change.

“While Microsoft has been buying start-ups, [the deal] signals a shift in its strategy and it will focus on digestion of Yahoo.”

The trend over the past few years has been for successful technology start ups, especially in the social networking space, to sell to the market leaders in trade sales. (By comparison, most entrepreneurs in the first tech boom realised their wealth through initial public offerings.)

This is all likely to change as the offers from the consolidators dry up.

But it’s not all bad news for tech entrepreneurs. There are opportunities to develop new concepts and ideas through start-ups while the big market players are looking the other way.

“While Microsoft is preoccupied, there could be increasing opportunities for start-ups to carve opportunities by being innovators – although it is hard to see how they might exit [at this stage],” says Dawson.

The deal faces tough scrutiny from competition regulators, particularly the European Union regulator, which has recently extended its investigation into the Google merger with ad serving company DoubleClick.

Dawson says there are two areas were Microsoft would get a “critical mass” from a merger with Yahoo – free email hosting and instant messaging. “I don’t see either will lead to reduction of competition. Both of those are free services.”

Many in the industry would be delighted to see some stronger competition for Google, which strongly dominates the web search market, but the merger of the next two largest players could result in a duopoly reminiscent of the Coles and Woolworths situation in Australia’s grocery market.

Many smaller operators in the grocery industry complain that this market landscape creates big barriers for new entrants into the market. Could the merger of Microsoft and Yahoo do the same for the web?