Microsoft and Yahoo: Here Comes Yesterday

Dan Farber thinks the shotgun marriage of Yang's Yahoo with the post-Gates Microsoft makes all the sense in the world:

The timing is right for Microsoft and Yahoo shareholders. Yahoo stock is depressed and the outlook for price growth isn’t optimistic. “We believe in this combination more than ever and we made a great offer and we look forward to the dialog,” Johnson said during the call. He also said that the company has a “clear line of sight” as to how to move forward with the integration of the two parties.

Ballmer talked about the big vision. Software plus services and the Internet are transforming Microsoft’s business. “Windows users want to be ‘Live,’ he said. He alluded to an Office Live, which I assume is a cloud-based Microsoft Office and not just the current Office Live that provides a set of online services for small businesses. Yahoo has 500 million live users, services and technology that could help Microsoft transform…and take on Google.

Ballmer said during the press/analyst call that Microsoft had been talking with Yahoo for 18 months and called Yahoo co-founder and CEO Jerry Yang last night to make the proposal. “We are confident this the right path for Microsoft and Yahoo.” I expect that Yang was somewhat relieved at this point to have such an offer after the week of Yahoo pummeling post earnings.

Yang certainly doesn't know what to do, and after having Hollywood Semel throw away a few good years of Yahoo's fortunes didn't help them much. They haven't turned the corner into the 21st century.

Microsoft thinks they know what they are doing, which is banking the fires and focusing on the enterprise. The Web is moving past Microsoft, making it the IBM of the 21st century, and like IBM, which let Microsoft, Dell, and others make hay during the personal computer explosion, now Microsoft is seeing Google, Facebook, and Amazon making inroads into the future at such a pace that they are floundering.

Personally, I think the Microsoft and Yahoo matchup is like two tired swimmers who bump into each other and then wind up drowning each other in their scramble to survive. But Yahoo will be the first to go under in this embrace.

We have already started to see the handwriting on the wall: a downturn, leading to a big reduction, leading to defections, stalled projects, political infighting, etc. I am sure that the best and the brightest over at the Brickhouse are creating business plans and prepping their departure posts.

Just smells like this decades AOL/Time matchup. It will go through. Microsoft will remove one competitor, but it won't work. It won't be enought to stop the future.

This is just as well for Yahoo, which had no strategy, really. They’d gone as far as they could with the old-media model, as exploited by the last CEO, former movie-studio head Terry Semel. Yahoo cofounder Jerry Yang started saying the right things about turning Yahoo into a platform, but it probably would have taken years to turn his culture around. They were too used to operating like a movie studio or publishing house.

<update> Jeff Jarvis says more or less the same as me:

Will this be big enough to beat Google? No, because big won’t win in the end. Open will.

</update>

Comments

[Euan W Semple]

I agree with your assessment Stowe. When I heard the news my first thought was of two old stars colliding shortly before they become black holes!

[Ontario Emperor]

I'm just kind of absorbing everything at the moment, but regarding your comment and Euan's comment about Microsoft itself, my first impression is that I wouldn't necessarily classify Microsoft as a tired swimmer or an old star just yet.

Microsoft is still the company that we love to hate (sorry, Apple), primarily because they continue to recover from their mistakes and return with an adapted technological vision. They have adapted themselves several times over the years, addressing new markets, new competitors, and national governments.

Regardless of whether Microsoft acquires Yahoo and fails with its newly acquired group, acquires Yahoo and succeeds with it, or fails to acquire Yahoo, I suspect that Microsoft will continue to thrive in some form or another.

Exxon and IBM have managed to survive over the years, and I suspect that Microsoft will survive also.

[Bob Caswell]

My only issue with this is that it seems ultra-simplistic. Basically:

"AOL/Time didn't work out like they hoped, and this is similar."

That's it? One example of a failure is enough to doom this deal? What about the fact, that, statistically speaking, Wall Street thrives on Mergers and Acquisitions?

This isn't the first time two big companies have decided to join forces, and it won't be the last. And the outcome is often very positive (or else no one would do it) even if the failures get most the press.

I'm just saying that most of the "this won't work" commentary is backed by little more than the "they're two big companies with different cultures and overlapping products" excuse.

But you could say that about any big company X merging with company Y. Bottom line: if there is limited correlation between the variable of "failures" and the variable of "big company mergers," well, I'm going to need to see a different variable as the scapegoat of this supposed failure before I believe any "can't stop the future" rhetoric (what does that even mean, btw?).

[Stephen Collins]

I think, like others here, that this is a meeting of dinosaurs and that ultimately, it just won't work. There's no revival for either Microsoft or Yahoo here.

But what bothers me is the fate of some of Yahoo's good properties - Flickr, Upcoming and the like. These are good tools and I would hate to see them consumed and damaged by any takeover.