Microsoft + Yahoo = Bad Idea

Microsoft has bid $44.6 billion for Yahoo. This is not a good idea because:

Microsoft and Yahoo are both struggling in search because their products are inferior to Google's. Combining the two companies won't fix this. Actually, Google is in a very dangerous position. All Microsoft has to do is come out with a superior product. Thanks to the zero cost of switching search providers, Google could face an exodus. While not an easy task, Microsoft has the resources to make this happen.
Yahoo is not a mining company. When you buy a company like Yahoo you're mostly buying the workforce. The only reasonable assumption is that the technical staff is highly anti-Microsoft. Even with a retention program, people will leave in droves. Your best people leave (because it's easy for them) while your weak people stay (for the opposite reason).
What is Microsoft going to do with all that non Microsoft technology at Yahoo? If this comes to pass, hopefully they'll be sensible about this and maximize the return on prior investments.
Microsoft is highly profitable thanks, in large part, to its corporate customers. Will Yahoo become such a distraction that they'll take their eye off the ball? Windows, Office, the development tools, and the server products such as SQL Server are all in a strong position; the last thing Microsoft needs is to start losing momentum in those areas.
Microsoft is paying an approximately one third premium for Yahoo based on market pricing. That's an extra $15 billion for a company in layoff mode. Even for Microsoft that's real money. Does that make sense?

Corporate mergers, especially big ones, have a long history not working out the way the suits plan. Will Microsoft go from powerhouse to lost in the woods?

Posted on Tuesday, February 5, 2008 7:17 AM | Back to top

Comments on this post: Microsoft + Yahoo = Bad Idea

# re: Microsoft + Yahoo = Bad Idea

I have to disagree.

1, 2: Microsoft is getting a huge database and a framework for keeping it maintained and updated, not to mention a well-established brand from both sides of the relationship, all wrapped in a pretty healthy corporate culture. Microsoft has also recently acquired aQuantive and FAST to enhance their own internal search- and BI-related offerings. Very quickly, they will have the superior product you're referring to without the ramp-up time that would allow Google to become competitive with the new offering.
3. Microsoft will do what it did with HoTMaiL ... leave the existing application in place while spending a couple of years subtlely rebranding and enhancing before integrating the offering into existing, Microsoft-specific services.
4. Microsoft will still make money off the corporations. However, they will take the view that led them to sell "student editions" of many of their products. If you use it at home, or learn on it, you'll use it in the office, especially if the UI rather than the data is established as the brand. This will prevent Google from leap-frogging ahead of Microsoft with even better search technology later. They'll have to compete on integration and UI, or something quite revolutionary in the search arena.
5. Yes.

Left by Jonathan B Adams on Feb 05, 2008 11:30 AM