The big behemoth in Redmond has set it’s eyes on Yahoo by making a hostile bid for the Sunnyvale, CA based company. The deal worth over $42 billion has certainly stirred some waves and the blogosphere is inundated with opinions and comments. Since the initial report about this surfaced early Friday rumors are rampant that other players could potentially enter the arena as well - the latest (as I post this) being News Corp.
The obvious reason for this “overture” by Microsoft is of-course Google and IMO Microsoft is indirectly acknowledging that it’s online business strategy has been a failure to say the least. When I first saw this story I could not help but be reminded of the early to mid nineties when Microsoft blatantly disregarded the internet and the world wide web simply as a passing fad. Well they were playing catch up ever since and are now IMO begining to realize that they have been taking the scenic route so far and it’s time to jump back on the highway. Their online search and advertising initiative (Live search engine) is not even close to Google’s - Google is pummeling them as far as ad revenues are concerned - Google controls about 62% of the search market and continues to widen the gap.
Ironically it was only less than a year ago when Steve Ballmer accused Google for “being successful at ONLY one business while Microsoft has reinvented itself many times over”. How quickly opinions change! Ballmer & Co actually lifted a page from the Google play book in making a bid for Yahoo. Up to this point Microsoft had always invested internally when it came to building new products and businesses that were outside the core product lineup i.e desktop software. This Yahoo bid is a huge departure from that strategy and they are now behaving like Google in more ways than one.
While the primary reason for this hostile takeover bid is to grab some of that online advertising market share from Google, Microsoft IMO stands to gain quite a bit more in the long run. When you think about Microsoft and Yahoo two words immediately cross your mind - old and new. The problem with Microsoft’s failure to make an impact in the online world is because of their culture and mindset. Since day one they have been a company that focused on entrenchment and closed platform strategies. They did not willingly enter or even embrace the concept of online software and the internet - they were forced into it because of competitive pressures from others including Yahoo. This IMO has been detrimental to their overall strategy until now. With this Yahoo deal, along with the intellectual property they stand to gain some new DNA. I think there might be some challenges with synergies but once those hurdles are crossed they might actually be able to fully make the shift in mindset.
If the SEC approves and the deal actually goes through I think we might see the beginnings of a “new” Microsoft. I saw some posts suggesting possible layoffs due to overlaps and also the possible retirement of the Yahoo brand name. I certainly hope the latter is not true because the brand name is key to move the company forward into the “new” era. With every acquisition, takeover, merger etc there is always going to be a set redundant functions that either need to be consolidated or eliminated. That is the unfortunate truth. However Microsoft has to be generous with the retention packages for some of the key employees and even top management if they want to make this work.
The coming days and weeks should be interesting to see how this pans out.
UPDATE: 2/4/08 - Google has now apparently entered the arena and made a statement. More on this later as the story develops.