Microhoo
Obviously, this is getting full coverage in the press, but I'd like to add my spin. Of course at this point, it is far from a done deal.
As you know, MSN has made a hstile bid for Yahoo. $45 billion is the largest acquisition ever by Microsoft. This is a dramatic change from the company's recent habit of buying Web 2.0 firms. This is a big buy with a high risk. And it is not a mark of Microsoft's power, but of its anticipated weakness in the face of disruption.
Even joining the #2 and #3 search engines/online advertising operations won't pit Microsoft within striking distance of Google. Google now has 56% of all online searches. The combination of Yahoo and MSN will barely exceed half of that - and Yahoo's share has been slipping lately. It's no longer an issue of quality of search engines - Google just dominates the mind space.
Microsoft has long lacked, as we've argued, the ability to innovate. Google has been innovating up a storm. And the danger is that the desktop approach, Microsoft's mainstay, looks like it has less and less of a future. The Vista operation system is still a loser, and in spite of endless efforts at dominating the Internet, it is constantly losing ground to Google. The next big battle is in mobile computers, and there while Microsoft has a position, it's a far less lucrative one.
But why Yahoo? The company, though it has a somewhat larger presence than Microsoft, is no great innovator either. As a New York Times article ("Yahoo Deal Is Big, but Is It the Next Big Thing?' 1/3/08) notes "In moving to buy Yahoo, Microsoft may be firing the final shot of yesterday's war." Things are moving with dizzying speed in the tech area.
If Microsoft succeeds, it may be a costly victory. Integrating the two companies and their cultures is likely to be a tough job, one that will end up taking valuable corporate focus. And as a San Francisco Chronicle article ("Merged Yahoo-Microsoft would have much overlap", 2/3/08) notes: "The combined online colossus would have at least two of virtually every popular online product - Web portals, e-mail, search engines, maps and message boards, to name a few." Deciding which of the reduplicated products to drop and when will be a tough problem, as there is no guarantee that users of Yahoo mail, for example, will want to switch over to the Microsoft version, Hotmail. Add to that the very real resentment that many Yahoo users have against Microsoft, and the company has to be careful to avoid losing customers after a merger, let along attracting new ones away from Google.
5:08:05 PM 
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