Microsoft: a kingdom for success

Dan Warne
4 February, 2008
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OK, so that’s not entirely true. Microsoft’s not handing over the keys to its bank deposit box. But its aggressive $A49.5billion takeover offer for Yahoo is the largest takeover it has ever attempted and tantamount to admitting it has failed in online search.

Embarrassingly for Microsoft, there is no way of hiding what an abject failure its forays into search have been, despite the billions upon billions of dollars invested in it. Anyone who runs a web site has the stats: referrals from Windows Live Search are so small that they rarely rank in the top 20 referrers, while Google dominates the #1 slot by a vast margin.

Such is Microsoft’s desperation to improve its standing in the online search market that it is offering Yahoo shareholders a 62 per cent premium on the current share price – thus the offering is “aggressive”. It’s too good for an investor with any financial sense to refuse, so Yahoo’s current management will have little control over its destiny.

I have to admit, when I saw the news of Microsoft wanting to acquire Yahoo, my reaction was to shrug and move on. Yahoo has clearly lost the battle in search to Google, and Microsoft is an old-world software company struggling to convert its business from selling software licences to becoming an online services and advertising company.

As dear leader Fake Steve Jobs observed today about the intentions of Microsoft supremo Steve Ballmer, “He knows it won’t work. He has to know this. He’s not stupid. The cultures will never fit together. And the deal is too big. It’s not manageable.” He has a point. Giant corporate mergers have a high failure rate. Look at the merger between Coles and Myer in the ’80s – umpteen management teams were brought in over the years but ultimately couldn’t make it work, leading to the eventual split-up of the two mega-retailers. And those guys were just shifting retail items. The difference between canned tomatoes and designer dresses isn’t as big as the difference between offline software and online search.

Google has also made some good points about why the Yahoo and Microsoft merger could be a bad idea: between them, they own the lion’s share of web-based e-mail and instant messaging users. "Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors’ e-mail, IM, and web-based services?" Google’s chief legal officer asks in a blog posting.

The impact on Australia could be quite interesting, because Yahoo is in bed with Channel 7 in its Yahoo!7 venture , while Microsoft is in bed with 7’s bitter competitor, Channel 9 via NineMSN. The chances of NineYahoo7MSN being formed are zero, so there’s clearly some tough negotiation that will be happening at this end.

The one good thing that could result from the Microsoft/Yahoo merger is that Microsoft might give up on some of its more abysmal “Live” services in favour of Yahoo’s superior offerings. Although there are a few good online services from Microsoft (Live Mps/Earth springs to mind), the majority of them are clearly created by people who didn’t start their career in web programming. Yahoo has some very good online services, like the photo sharing site Flickr, Yahoo Movies, Yahoo Answers, and others.

What are your thoughts on a Yahoo/Microsoft merger? Will it merely create a lumbering monolith that reduces choice in online search, or is it a good thing that Microsoft is finally conceding defeat in its own efforts and acquiring the skills and technologies it is lacking?

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