Friday, February 1, 2008

Microsoft's Yahoo bids speaks as much of failure as opportunity

Is Microsoft buying Yahoo! because it has succeeded in its own Windows Everywhere strategy and 12 years of lackluster performance on the Web?

Is Microsoft trying to buy Yahoo! because Yahoo! is seemingly at a weak point, unable to dominate in the key areas of search, advertising, and media?

Nope, Microsoft is trying to buy Yahoo! because neither Microsoft nor Yahoo! is succeeding on the Web in the ways that they should. And it's not just Google that has an edge: Consider Apple, eBay, Salesforce.com, Facebook, MySpace, Disney.

And how much sense does putting Microsoft and Yahoo! together make now? Not as much as it did two years ago when Yahoo! was stronger and Google was weaker. We should also thrown in that Apple and Amazon are also much stronger now than at any time in the past. The media conglomerates are starting to figure things out.

So once again, we have Microsoft throwing outrageous amounts of money late at what should have been an obvious merger for them a long time ago. I recall is discussion on the Gillmor Gang podcast at least two years ago that wondered when -- not if -- Microsoft would buy Yahoo! Most of those on the call, including me said it was the only outcome for Yahoo! and the only way for Microsoft to blunt Google.

But that was then, and this is now. So the burning question today is not whether a Microsoft-Yahoo! mashup makes sense -- it has made sense for years. The question is whether it makes sense now, at this outlandish price, and if this in fact marks the point where Microsoft makes a desperate and devastating mistake.

Is the Yahoo! cloud built on Windows? Nope. So the model of Windows Everywhere is junked. Accessing Yahoo! services only requires a browser -- so much for the "software plus services." Will the burgeoning Microsoft cloud and the aging Yahoo clouds work well together? Will one be able to absorb the other. I say no to both. These will be separate and ill-fitting infrastructures. Will the Redmond and Silicon Valley cultures work well, or will huge layoffs in California portend even more gridlock in the eastern Seattle suburbs?

What might be even worse -- Microsoft make try and require all the Yahoo! users to get better service via their clients. Would they be deluded enough to try and tie Microsoft client-side software to Yahoo! web services? Watch the flood to Google, if they do. Watch for Google to scream about monopoly abuses if they do. [Good thing the new mega mother of all hairballs will be under anti-trust review for a bit longer, eh?]

Does this mean what Microsoft was wrong about open source too? Because Yahoo! has built its infrastructure on a lot of open source code, including its cloud infrastructure keystone Hadoop. So Microsoft will own one of the world's most massive open source distributed datacenters. As an enterprise, should you choose a Windows platform -- or Microsoft's new choice to win on the web -- open source?

Right, so for the need to win in search, media and adverting, Microsoft is now selling its Windows Everywhere soul. They have been handing you an expensive line of proprietary crap for years, and by buying Yahoo! and its totally different approach to Web infrastructure -- they admit it.

What's more, will the world like getting their news from Microsoft? As a user, which search engine will I get when I log in to Yahoo! or MS Live? Which email will I get when I log in? Can he Yahoo! directory merge with the Live, nee Hotmail, directory? Which company will be the one I think of as the "brand"?

This spells a significant period of confusion. And that's for consumers, IT buyers, enterprise CIOs, and advertisers as well.

And for the enterprises that have invested their fates in Microsoft infrastructure, how will they get their Web services? Will it be Yahoo! for the consumers, and Microsoft Live or the business folk? Or vice versa? Both, a mish-mash? Yikes!

What's more, the Microsoft-Yahoo! amalgamation will become the enemy of the media companies worldwide. There was a certain d├ętente between Microsoft alone and Yahoo! alone and the media world. No more. And Google could position itself as the happy medium (pun intended).

This proposed deal smacks of desperation, not multiplication of growth opportunities. But the price premium probably makes it inevitable. The only way to make this work is for Microsoft to spread itself more thickly as a media, advertising, technology, services, platform, tool -- everything to everybody. The risk is to be less and less of anything to anybody.

Microsoft is perhaps perceiving itself as pouncing on Yahoo!, given its current disarray. There's the weird board action, and the layoffs, and the performance issues. But this is weakness buying weakness, with a large period of confusion, dilution of value and brands, and risky alignments of cultures and technology.

And this from Microsoft - the hithertofore conservative acquirer that doesn't go for the big, blow-out acquisitions. Well, this is the big blow-out media merger of the year. Seems that going in the other direction, of splitting Microsoft up into logical sections that can operate and compete on their own, is out. For some time, no doubt.

The biggest risk is that if this ends up the mess it appears, that it just may end up just driving more consumers, advertisers, and businesses into the waiting arms of the singularly understood and focused Google, Apple, and IBM. It could well backfire.

And I for one will miss both Yahoo! and Microsoft because whatever they cobble together from the two won't be able to do the same that either did separately. It will be hard to define just what it is ... I think I'll call it Amalgamated Digital. It certainly isn't "micro," and it's not "soft." Any yahoo can see that.