Dear Steve: Y! not?

David Braue
10 November, 2008
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Last week, I suggested that struggling computer giant Sun Microsystems would make a great takeover target for Apple, which could buy its way into pole position in the enterprise market and gain access to a colony of developer skills responsible for the likes of Solaris and Java.

This week, in what appears to be part 2 of my “If I ran Apple” series, I’d like to suggest another option, this one perhaps more appealing to those who worry about Apple extending itself too far into the enterprise space, too soon. And that option is Yahoo!

With US competition regulators knocking back the proposed partnership between Google and Yahoo!, the onetime Internet megalith now finds itself in the unsavoury position of begging – that’s the only thing to call it – for Microsoft to come back to the table and continue negotiations the two companies entered into last year.

And Microsoft, repeatedly rebuffed last year for a $US33 per share offer that Yahoo! CEO Jerry Yang said was too low while seeking partnerships with MySpace and AOL, has told Yang to take a long walk off a short pier. There is such executive animosity at play here that I wouldn’t be waiting with baited breath for Microsoft to do anything other than make the crushing of Yahoo! a major strategic priority.

Apple, on the other hand, could gain a lot from stepping into the game at this point. Why would Apple want to buy Yahoo!? Easy: for all its recent dramas, Yahoo! is a leader in online content – video, social media, even photographic management via its Flickr portal.

More importantly, Yahoo! has oodles and oodles of servers supporting things like Yahoo! Mail, which with more than 275 million users per month is in a totally different category than Apple’s MobileMe – which has already suffered repeated outages and problems as Apple tries to figure out how to make this cloud computing thing work right. MobileMe could be ported onto this platform, providing the scalability and reliability that Apple has not yet been able to deliver.

With tools like Yahoo Calendar, Yahoo Groups, jobs listings, mapping services, music sales, online shopping, and way more, a partnership with (or, if Apple is feeling a bit peckish, a takeover of) Yahoo! would plug many gaps in Apple’s own MobileMe strategy, strengthening its own offerings while turning it into a consumer-Internet Web 2.0 content superpower — all without threatening its all-important base of hardware.

Such a move would, of course, sour Apple’s arm’s-length relationship with Google, in which Google’s evolving cloud computing strategy seems to be regularly mentioned in the same breath as the iPhone. But Google isn’t ever going to exclusively commit itself to Apple, so an alliance with Yahoo! wouldn’t mean real sacrifice. And, ultimately, Apple’s customers will still use Google cloud apps when they want them.

Yahoo! can’t afford to only service Apple customers, so such a move would require Apple to effectively concede that massive future growth will not be exclusively on its own terms. Steve Jobs may be loathe to concede this – yet, as I indicated last week, Apple can only perpetuate its current desktop-and-iPhone-and-iPod strategy for so long before customers and analysts start asking for more.

Of course, given Apple’s success in driving growth by converting Windows users to its side — and there are still many more potential converts — it may be a while before the market gets that impatient. But Apple is a giant in the hardware and music markets it has created, while Yahoo! is a serious Web 2.0 contender with a broad and diversified base of content and partnerships (including with Seven Network in Australia). Partnering with Yahoo! would also propel Apple into the massive world of Internet advertising – and I don’t need to spell out the significant opportunities that market would provide.

The bargains are out there, and it looks like somebody is going to buy Yahoo! Why shouldn’t it be Apple? Assuming for a moment that Apple doesn’t want to incur the complexity of integrating a Sun acquisition, it could plan a much more long-term, complementary relationship with Yahoo! and come out smiling.

Apple’s strong cash position and continuous growth put it in a position of power that could really play to both companies’ strengths, and consumers would likely welcome the combination. Whether Apple’s board agrees is another matter – but it’s certainly an idea worth entertaining.

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