Microhoo

"Microhoo", that's what a Microsoft-Yahoo conglomerate might become. The web has been going crazy over Microsoft's bid for Yahoo. A lot of people believe it doesn't augur well for the world but the same people also believe it's a good thing for the Redmond giant. Here are two giants in their own respect, trying to see if they can get together to stop (or at least slow down) the Google juggernaut.

I think this is a very bad move by Microsoft. They have traditionally done poorly on the web[1] and have managed to keep their web offerings online by virtue of all that extra money from their desktop cash cows - Windows and Office. But times are changing and the world is moving away from a desktop-centric model. I, for one don't believe the web is set to replace the desktop anytime now. There are a bunch of things I would prefer doing offline no matter how compelling the online version is. Even though I would love my computing to happen on the cloud, the same cannot be said about my storage. I would still prefer a local (and private) storage area where the majority of my files reside.

Given that Microsoft don't get the web, it might seem logical for them to go buy a web giant and hope things would turn around. But that's exactly where the problem lies; "Microsoft don't get the Web". I would consider it an almost impossible task to do well on something I don't understand very well in the first place. Unless Microsoft understand what the web is all about, I doubt they can do well, no matter who they manage to buy. Yahoo will be a useful addition to Microsoft's arsenal but I doubt if a $44 billion purchase is warranted for what would merely be a useful addition.

Will Google sit up and take notice ? Sure. Will Microsoft's profits improve ? I guess so. Will it be game changing ? Nope, Sorry.

The areas that Microsoft would benefit almost immediately if they manage to acquire Yahoo would include online photo sharing, instant messaging, email and to a certain extent, groups. And photos is perhaps the only area that Microsoft could better Google outright if the Yahoo deal materializes. Yahoo Mail is certainly better than Hotmail and could supplant or improve Hotmail but it might not make a huge difference to the bottom-line other than a staggering increase in the number of users. However, GMail simply blows all competition away and I don't expect Yahoo to come anywhere close. Yahoo did try with their new Ajax email interface [2] but failed rather miserably.

Yahoo search is not so much better than Microsoft's and I would expect the latter to retain their Live Search as the primary search offering. Yahoo and Microsoft already allow cross pollination on their IM platforms and they might be able to give Google a run for its money in this segment (given that Google hasn't done much to improve their IM platform lately).

The name of the game is online advertising and that's what Microsoft is vying for. They predict a $80 Billion market by 2010 and want a sizable chunk of that pie. Yahoo's Panama has done rather poorly and Microsoft's online advertising offerings are not much better either. Probably, they are hoping that the aggregation of all good things from Panama, aQuantive and their own offerings will create an ad platform that could pose a serious challenge to Google's AdSense. I am not too sure.

There are a lot of areas where Microsoft and Yahoo offerings will clash and it's going to be one hell of a mess as some of these services might either be collapsed to form a monolith or dropped altogether. The net gain for Microsoft might be more users and a small increase in their net revenue (not counting the cost of the acquisition). This is where things start bothering me.

Microsoft has become this giant that cannot do anything cool on its own, it needs to buy someone to make it happen. Sadly, Yahoo is more or less on the same boat and haven't done anything path breaking for a while now. I fail to understand how such a conglomerate can pull off anything spectacular (and they better, because $44 B is not small money even if it's Microsoft in question). There are a whole class of problems that Microhoo will have to encounter and it looks unsurmountable at this time.

Microsoft and Yahoo are two entirely different cultures and Seattle can never level up to Sunnyvale when it comes to employee profiles. A cultural clash is bound to happen at Microhoo and it could turn nasty for quite a few people. Attracting and retaining young talent is another worrisome area. Yahoo can and does attract college students (who invariably are the ones who pull off a coup when it comes to web offerings) whereas Microsoft is believed by many to be a mature company (a nice way of saying it's more suited for older people). Not that Microsoft doesn't attract brilliant CS grads but they are few and far between. Most of the brilliant kids go off to start their own company or go to Mountain View.

Since Microsoft will end up being the dominant partner in Microhoo, they could enforce the "Microsoft Way" in day to day operations. This means a whole bunch of nice people in Yahoo who hate Microsoft might leave. Yahoo is built on a foundation of Open Source Software (BSD, PHP, MySQL and the works) and this is something not in agreement with Microsoft's anti OSS stand [3]. Microsoft said in its press statement that Microhoo could save upto $1 Billion in operation costs. I sincerely hope the guys at Redmond have a more solid reason to acquire Yahoo (it could take them 44 years to break even).

If Microsoft does decide to act a responsible parent to Yahoo and lets the latter run its show and ensures a steady flow of money, the collective intelligence of both the companies could come up with offerings that give Google some serious heat. But I seriously doubt if this would happen. Microsoft don't have a single profitable division outside Windows and Office. (I know about XBox, shut up about XBox, it's seriously subsidized by the surplus monies from other divisions). Perhaps, a serious misstep by Google if it coincides with a coup by Microhoo could tilt the balances which I seriously doubt will ever occur. Google is not invincible, they are just very very difficult to beat. And if someone does manage to beat Google, I can bet it's going to be someone new or unexpected, not the usual suspects Microsoft or Yahoo, simply because if these companies could beat Google, they already would have.


Disclaimer : The writer is not affiliated to Google, Microsoft or Yahoo at the time of this writing.

Notes :

1. I know about Live and also about how much it sucks and don't even get me talking about MSN.

2. GMail uses Ajax in a non obvious and intuitive way. Yahoo on the other hand really screwed it up badly, and used Ajax because they could. Their new web mail outlook clone simply sucks and hastened my complete migration to GMail.

3. I can't imagine Flickr on Windows servers or Yahoo Mail written in ASP.NET, I just can't no matter how hard I try.