Microsoft finally went public with its $44.6 billion offer to buy Yahoo, following years of aggressive efforts to talk the company into selling out in private negotiations. Why does Microsoft want Yahoo so badly, why hasn’t Yahoo jumped at the deal, and how would such a merger work out for Microsoft, Yahoo, and the tech industry in general? History suggests some answers.
[graphic courtesy Alf: Microsoft se intenta quedar con Yahoo “por las malas” [Actualizado] | www.faq-mac.com]
En Português Brasileiro: Por que a Microsoft na verdade quer o Yahoo?
Traducción: Ubiratan Olivério
Why Microsoft wants Yahoo.
According to CEO Steve Ballmer, Microsoft’s interest in Yahoo is all about growing in online stature to rival Google while benefitting from shared costs and operational efficiencies. Ballmer’s open letter to Yahoo shareholders sounded suspiciously similar to Carly Fiorina’s giddily optimistic but ultimately disastrous plan to merge Compaq into HP.
“While online advertising growth continues,” Ballmer wrote, “there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence.” Ballmer specifically noted “synergies related to scale economics” would help the combined companies to compete in a market where “there is only one competitor at scale,” clearly a chair thrown in the direction of Google.
“Expanded R&D capacity” would “unleash new levels of innovation,” Ballmer continued. Using Microsoft’s definition of innovation, that would have to mean that the deal would be all about tying Windows and Microsoft’s other proprietary technologies to Yahoo’s online properties and services.
Ballmer also noted “operational efficiencies” as an upside to “eliminating redundant infrastructure and duplicative operating costs.” That means either lots of pink slips for MSN and a simple rebranding of Yahoo’s technology under the Microsoft label, or massive layoffs of Yahoo employees skilled in Unix and open source and a Hotmail-style transition of Yahoo’s systems to a Windows-powered infrastructure.
Lastly, Ballmer highlighted “emerging user experiences,” where he again repeated an intent to “drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms.” Ballmer is describing a replay of the “Windows Everywhere” of the early 90s, albeit applied to the web rather than office equipment and gadgets.
How Microsoft Innovates.
If Microsoft plans to convert Yahoo’s services into more “innovative” ones running on its own platforms and tied to Windows, wouldn’t it be easier to just develop it all from scratch? Why would Microsoft pay through the nose for Yahoo’s existing online businesses largely built upon FreeBSD, only to sack them or spend significant resources converting things to run on Microsoft’s platform?
In all fairness, Microsoft has long tried to build an “innovative” online and search business from scratch. The original MSN was a clone of AOL created in 1995 just in time to see the emerging open web topple the interest in proprietary online services. The next year, the company rapidly developed a new Internet strategy involving the purchase of Internet Explorer, and tying it into Windows to prevent any alternative open development platform from emerging.
After purchasing Hotmail in 1998 and embarking on a mission to develop a wide range of other Internet services under the reinterpreted MSN brand, the company still found itself unable to build a profitable business online over the next decade, despite all its efforts to leverage the Windows monopoly desktop platform.
The web had quickly established that there was no real money in pay per view content, nor in web site subscriptions, nor fee-based services. Microsoft’s huge investments in online properties had only served to prevent competition to Windows, not to build any real value or result in any new revenue sources.
