Last week I presented my best guess why Microsoft would want to buy Yahoo. What was it that made Yahoo worth $44.6 billion to Bill Gates? Based on what I believe is a pretty profound understanding of the innards of each company, I said it came down less to competing with Google and more to transforming Microsoft into a new company operating under new rules and successful in a new era. Anything else simply didn't make sense to me. Ganging up on Google might sound good, but combining corporate cultures is difficult and in the short term -- which is all that matters to most companies today, seeing their trajectories simply as a succession of short terms -- it could only help Google and hurt Microsoft/Yahoo. If Microsoft was serious about its bid for Yahoo, then there had to be some bigger prize for Redmond that went beyond simple market share.
But what if Microsoft wasn't serious about its offer? Well then things start to get REALLY interesting.
Certainly Microsoft's offer for Yahoo has thrown that company and several others into a tizzy. Yahoo can't be getting much work done, that's for sure. And if you believe the press reports, AOL and News Corp have been dragged into the strategizing, too, and are subject to disruption. For Yahoo, as the primary target, overall efficiency in the company will have dropped instantly by 20 percent just because people will be talking at the watercooler rather than doing their work. And Yahoo wasn't a very efficient place to begin with. This alone has some value for Microsoft, where I will guarantee you the distraction is far less.
Screwing with the minds of Yahoo has value to Microsoft and screwing with AOL and News Corp, too, well that's just a bonus.
You can see that Yahoo is concerned about Microsoft's real intentions in its response to the Microsoft bid. The Yahoo board said the bid undervalued the company, but Yahoo spokesmen (not the board) carefully added that regulators might block the deal and Microsoft was offering no financial guarantees.
If Microsoft were to come back to Yahoo with a sweetened bid nearer to $50 billion and a guaranteed $1 billion termination fee if for any reason the deal should be blocked or fall through, I'm guessing Yahoo would respond much more favorably.
It's up to Microsoft now to prove its intentions.
There is good reason to believe, however, that Microsoft's intentions are anything but good. Redmond's real goal may be simply to poach people from Yahoo, and this deal could help them do just that.
There is plenty of historical precedent for such behavior. Back in the 1990s, for example, Microsoft made many approaches to Borland, a company that was giving it fits in the programming languages business at the time. Borland's products were simply better (and a lot cheaper) than Microsoft's. Bill Gates had also been stung by the defection of an important Microsoft executive, Rob Dickerson, to Borland. Failing to buy Borland at a good price, Microsoft took to recruiting Borland employees, sending limousines during lunch hour with Microsoft signs in their windows to Borland's Scotts Valley, California headquarters to pick up techies for job interviews.
Microsoft reportedly took this technique to an even higher level around the same time when it tried to buy Intuit, which at that point was primarily known for its Quicken home finance application. Microsoft wooed Intuit and won the company in 1994 with a $1.5 billion all-stock offer. Another reported incentive to Intuit was Microsoft's threat to throw $1 billion into development of competing products if Intuit didn't sell out.
Already in antitrust trouble with the Department of Justice, Microsoft eventually dropped the offer, paying Intuit a $46.25 million termination fee. But according to at least one Intuit techie who jumped to Microsoft shortly thereafter, the primary purpose of Microsoft's bid was actually to get information on Intuit's programmers, NOT to buy the company.
Unlike Borland, where Microsoft paid a PR penalty (and later scored a lawsuit) for sending limos to the parking lot and interviewing anybody who would get in, by entering a formal due diligence period with Intuit, Microsoft got access to many details, including Intuit’s product plans and employee records. By the time they bailed on the deal, Microsoft had a very good idea exactly which Intuit employees to recruit to both improve Microsoft Money and to hurt Quicken, QuickBooks, and TurboTax.
It is a testament to Intuit that the company survived.
Now jump to Yahoo, where exactly the same process could be in effect. At a minimum Microsoft is forcing competitors to act when they would rather not. If Yahoo succumbs Microsoft will gain exactly the sort of inside information they got from Intuit. Yahoo is a huge company plagued with pockets of inefficiency (pockets of efficiency?). A failed Microsoft bid, even one involving a termination fee, could lead to horrific results for the company. Remember that Yahoo is staggering here while Intuit was at the top of its market and its game.
I'm not saying this is what's happening, by the way, just that it concerns me. I guess we'll have to wait and see.
And while we are waiting, most of the technology world has been hanging out this week in Barcelona, learning about the future of mobile technology at the 2008 Mobile World Congress, which sounds like a government agency but is really just a trade show for cellphones. Google is there announcing a new version of its Android open source software developers kit for building Linux-based mobile phones that will work well in the Google ecosystem. But unless it is happening behind closed doors and I am unaware of it, nobody in Barcelona is looking at a true Google Phone or gPhone, which won't hit the market until later this year.
The whole concept of the gPhone is problematical both for the market and for Google, itself. I'm making a distinction here between Android phones introduced by any number of vendors and a true GOOGLE phone — a gPhone — actually sold under its own brand by Google.
Microsoft doesn't sell PCs, you may notice, because to do so would step on the toes of their hardware OEMs. Okay, the xBox 360 is a lot like a PC, but it is still a lot more like a video game and Microsoft was around for 25 years before it dared sell an xBox. So conventional wisdom says Google won't sell a gPhone, preferring instead to see the world repopulated with Android phones, instead.
But Google is not like other companies, which means they are sometimes bolder and sometimes more foolhardy, because a Google-branded gPhone — two of them, actually — is on the way.
Here is what little I know, dropped in my lap this week by a loyal reader (you know who you are). There are two gPhones slated for release with the first coming in September and the second probably not appearing until after Christmas. Given that the first is the high-end model and the second is cheaper, Google will probably expect to make as much money as possible on the higher-margin units at Christmas before revealing the budget model even exists. How Apple-like, eh?
Both will include WiFi, which makes me wonder if a VoIP client will be there, too. The high-end phone will look somewhat like a Blackberry Pearl, but the screen flips up and there is a keyboard for texting. No word on pricing for the high-end phone, but the second model is intended to be less than $100 — AFTER Christmas.
The actual manufacturer of these gPhones will be Samsung (rumors to this point had indicated HTC, so this is a change) and Google is still talking with both T-Mobile and Verizon as potential carriers (rumors also said Verizon had passed — not). That means there are both GSM and W-CDMA versions in the works. Given AT&T's success with the iPhone I can't imagine Verizon will let the gPhone pass, but it will be interesting to see if Google will be able go with a nonexclusive deal and get both U.S. carriers.
