Sunday, February 03, 2008


Although people had been chattering about the possibility of Yahoo hooking up with Microsoft for quite some time and it did seem inevitable, it nonetheless came as quite a surprise on Friday morning. Overall, I personally think it is a great idea. Sure, there are plenty of "integration" (assimilation??) issues, but I do think that there are plenty of opportunities for both synergy and side-by-side operation. These are all my own personal thoughts and not necessarily representative of the intentions of my employer.

One simple note: The acquisition is not a done deal and any number of factors could scuttle it, but for now it feels does feel like a fait accompli.

Even today, the acquisition is still by far the top story on Techmeme.

Microsoft has always been a marketing and brand-oriented company. Yahoo is both a company and a brand, and in fact multiple brands. For example, Flickr is a very distinct brand even though Yahoo is the owner. I have no idea what Microsoft intends, but continuing to permit valuable brands to thrive is certainly the kind of thing they tend to do. Sure, sometimes they make mistakes, (like trying to re-brand Hotmail), but reality appears to be a respected factor in marketing decisions at Microsoft.

Integration of data centers is an obvious benefit. Although the apps and OSes may differ, blades are blades, racks are racks, web services are web services, IP is IP, routers are routers, electrons are electrons, electricity is electricity, HVAC is HVAC, bricks and mortar are bricks and mortar, so the data centers are almost a slam dunk for integration at least as far as planning, construction, and running new data centers.

I would imagine that quite a number of pieces of Yahoo will continue to operate the same even after the acquisition, with the caveat that unprofitable and inefficient operations will be ripe for reorganization, assimilation, and even pruning.

I would imagine that Yahoo mail and Hotmail will operate side-by-side (independently) for the foreseeable future. Once again, belief in the value of brands is a core value at Microsoft. Over time, I suspect that the underlying technology will become shared, but the independent brands can continue to survive to the degree that they continue to thrive in the marketplace.

Search is an interesting question. Longer term I imagine that the underlying technologies will merge (or be superceded with new technology) and benefit from scale. Shorter-term, I imagine that allowing the separate brands to operate on their own will be the likely scenario. Medium term, I imagine some sharing of technology and talent between the teams with an emphasis on enhancing which technology is deemed to have the best long-term potential. The primary difference in the very short-term would be that Microsoft as the parent corporation would own the revenue streams and advertising space from Yahoo.

Combining MSN content and Yahoo content is an obvious area of synergy at least in terms of offering a single, combined advertising pool for scaling ad revenue. Sure, there is plenty of overlap in content, and I am sure that over time the less profitable content will die off, but there will probably continue to be significant benefit to maintaining distinct brands. 

Defections? I am sure there will be some, but I doubt that they will be substantial enough to damage the core value of the combined enterprise. Sure, there will probably be some subset of the anti-Microsoft crowd in Silicon Valley who will try to convince people to abandon Yahoo, but most people do not care about such ideological passions. A bigger concern might be the Unix versus Windows technical issue since there are probably some number of Unix-saavy engineers within Yahoo who won't feel that their expertise will be highly valued in a "Windows shop." OTOH, much of the engineering work these days is at the network and Web and web services level that is agnostic about operating systems. In the short to medium run I imagine that Unix will continue to thrive in much of Yahoo. The upside of any defections might be a new wave of start-ups.

One remaining issue is what attitude the Yahoo founders and key architects will have towards their new "owner." I don't imagine these guys willingly committing to long-term employment at Microsoft. Maybe they will go independent and "advise" the company. Will they remain stockholders or immediately turn around and dump their MSFT stock?

In short, I think the acquisition is a triple win: 1) Yahoo is "saved" from being adrift, struggling, and decaying, 2) Micrsoft gains scale and valuable brands, 3) Microsoft investments can be leveraged to provide greater benefits to consumers.

Meanwhile, us MSFT shareholders have to grin and bear it for a while longer (two months or so?) as we patiently wait for Wall Street to finally come around to reflecting reality and fundamentals rather to treat this as simply a short-term trading opportunity ("Sell short the acquiring company and buy long the acquired company... acquisitions rarely work...") That said, I would prefer to take this hit now and get it over with and go forward with the knowledge that the company will be poised for a continuous stream of improvements.

The real point of this post is that this one business decision has provided such tremendous fodder for debates in the blogosphere (and MSM) and will quite literally drive debates for many months to come. Call it another Microsoft "innovation." There are probably at least a thousand key decisions that Microsoft will make about Yahoo, each of which will kick off its own wave of blogosphere traffic.

-- Jack Krupansky


Post a Comment

Subscribe to Post Comments [Atom]

<< Home