February 02, 2008

Microsoft and Yahoo! Yesterday's News on Yesterday's Companies

In case you were concerned about me, I didn't miss yesterday's news about the proposed Microsoft takeover of my Sunnyvale neighbor, Yahoo!. I just felt that with everyone on the planet, and some in other planets, for sure, talking about it, I'd not only be lost in the noise, but seen as a me-too blogger, which I'm trying to avoid. But we saw it. And we think it'd be a mess.

(Peek at TechMeme for yesterday's million headlines)

Microsoft's goals with a Yahoo! acquisition are clear - try to become relevant in the Web space, including search and social networking. The company saw Yahoo!'s recent dysfunction and hoped to get the company on the cheap, while taking on Google in a more aggressive way. But this won't help their position against the competition, and may actually make the situation worse.

But, if you're Google, a Microsoft-Yahoo! alliance is just about the best thing that ever happened to you. It would combine two of the most confused and unfocused competitors you have, guarantees months to years of integration issues and slowed product development, concern about layoffs and jockeying for position amid increased political infighting. It wouldn't promise improved innovation and technology that would threaten your leadership, but instead take two companies with varying cultures and ask them to beat you together, where individually, they have failed.

If you're Apple, you see Microsoft aligning with Yahoo!, making Google more likely to align with you, which can only be good. You see the company who designed the Zune hook up with the company whose Yahoo! Music offerings went absolutely nowhere. You hope the company keeps making Mac Office, but you've got two backup plans, with your iWork suite, and Google Office.

While Yahoo! once had the leadership position on the Web, and still leads in a few areas, including population on Yahoo! Mail, and a good portion of the portal space, they've fallen behind everywhere else, the exceptions being their smart acquisitions of Web companies like Flickr, MyBlogLog and Del.icio.us. Microsoft never could get there, and while they still own the world's most popular and most hated browser, in Internet Explorer, they've had very little success anywhere else. Even their massive acquisition of Hotmail has turned out to be an unrespected joke.

A Microsoft and Yahoo! combo would have the world's most popular operating system, and the world's most popular office application suite. You could presumably layer on top of that Yahoo!'s widgets, acquired from Konfabulator. You could then integrate Outlook with Yahoo! Mail, and combine MSN search and portal efforts with those of Yahoo!, but just look at what's happened with all the other search acquisitions on Yahoo!'s side: Alta Vista, Inktomi, and Overture, for starters.... have they made Yahoo! better and more popular than Google? No.

A Microsoft/Yahoo! merger would take two tech titans, remove one, and make the combined offering less successful and less innovative than the combined efforts of the original. It'd give Google a free pass and extend their head start. It'd eliminate thousands of overlapping jobs, and send many smart folks out on the street or off to new start-ups. But if Yahoo! knows what's good for it, it'll reject the underpowered Microsoft offer outright, tell Ballmer to pound sand, and take a renewed effort toward integrating its own services and competing aggressively in the market. I just hope they're smart enough to say "No Deal".


  1. Hi Louis,

    I can't agree more than this on what you've said. The very silence of Google on this issue reminds us that it really is interested in allowing the deal go through.

    I'm sure you've heard of shooting two birds with one arrow. Thats precisely what Google is doing here. By allowing MS to take over Yahoo, Google is basically killing two of its chief rivals in one swoop.

    Who ever said we need more competition on the net, is sure for a shock. Out and out this deal looks like a combined yahoo and MS would hit Google hard, but thats never gonna happen.

    And Louis you aren't being a Me-too blogger here, but I'd like you to have a look at my thoughts on this issue over here

    and do read the comments as well. Btw you got a great blog on here.

  2. I'm a small time analyst, a freelancer. Google, Microsoft and Yahoo have pulled my CV and portfolio samples 500 times. I have a good rep for deal analysis, but not at their level. I typically create critical reviews for product strategies, working with Product Managers to get errant products re-focused on real markets. Anyway...

    IF I were advising any of these companies, I would offer my opinion thusly:

    Microsoft: Do you have any idea what 44 billion dollars really looks like to an M&A group. You could buy half of the Silicon Peninsula with better individual product portfolios that the combined Yahoo properties, without the merger, culture, and management baggage, and you would not have to look at Decker.

    Yahoo - this one is easy. Stick to your knitting and get back to being a technical meritocracy. Divest of the entertainment properties,and instead rely on partnerships for content. Expand the computing infrastructure and start to offer services with a value add for the coming revolution in corporate SAAS via SASS.

    Google- boy, have you guys run me around the block. You had me down there 10x, only to discover, yet again, I', not a University grad. It's right there on my CV! I know it was a mistake of my youth - I wanted to be a professional bass player.

    My advice to Google - sit back and watch the train wreck.