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Another Look at Microsoft and Yahoo

"I feel the earth move under my feet
I feel the sky tumbling down, tumbling down"

-- from "I Feel the Earth Move" by Carole King

We've had a little bit of both the last few days -- moving earth and tumbling sky. (And, yes, RCPU apologizes to our more macho readers for quoting an artist as...uh, sensitive as Carole King two days after the Super Bowl. Hey, we're feeling introspective.) First, the earth moved on Friday, as Microsoft (finally) proposed a $44.6 billion buyout of Yahoo. Hey, that much money in that many briefcases hitting a boardroom table would make anybody's floor shake.

Then, of course, the sky tumbled down -- at least here in New England, where the local football eleven, the Patriots, will not come home to a celebration of a perfect season but rather to slate-gray skies and a renewed Bostonian sense of inferiority toward New York thanks to the Giants' Super Bowl victory. Oh, well. At least we still have the Red Sox here in Boston, although it feels right now as though they won the 2007 World Series approximately 437 years ago. Collectively, we're all a little down around here.

Anyway, given that this is RCPU and not, we'll focus on the moving earth of Microsoft's bid for Yahoo -- the name of which, as always, we mention here sans obnoxious exclamation point. Redmond's bid to take on Google (with which, as you might imagine, Google is none too pleased) is the one story that has competed with the Super Bowl and Super Tuesday for newsprint and online eyeballs the last few days.

Fortunately for Microsoft, government regulators on both sides of the globe seem, for now, uninterested in blocking the potential deal. As for everybody else's reaction, the takes have ranged from the ridiculous to the sublime to the indifferent, and pretty much everything in between.

Casually canvassing the Redmond Media Group cognoscenti, RCP Editor in Chief Scott Bekker wondered not just whether Microsoft and Yahoo would ever be able to integrate, but also how much sense it makes for two companies that are both losing ground to Google to combine with the goal of catching Google. Can the blind lead the blind? Ed Scannell, industry veteran and editor of Redmond magazine, RCP's sister magazine geared toward IT types, posited that Microsoft might need to change its hostile attitude toward open source if it plans to buy what is essentially an open source company.

Here at RCPU, we're mindful of a couple of things. First of all, the proposed takeover isn't a done deal. Let's not forget that -- especially given news this week that Yahoo might not be so excited about a Redmond takeover after all. Beyond that, let's not forget to note how staggering Microsoft's offer really is. The company would likely have to borrow money for the first time ever in order to pull off the deal, and the price tag, at upwards of $40 billion, dwarfs that of Microsoft's biggest acquisition to date: that of online ad firm aQuantive.

We're also wondering to what extent the Yahoo bid plays into something we've discussed before -- Microsoft's attempt to move the market to Web services rather than be moved by the market. Steve Ballmer's still talking about Windows, Office and servers as major revenue producers, but Microsoft's recent executive hires and the potential $45 billion cash outlay for Yahoo seem to scream that it's time to start thinking about the end of desktop software as we know it and move to -- not just imagine -- a world in which most computing is delivered via some sort of service.

Of course, for Microsoft, that would mean seriously downplaying the model and the products that made the company what it is today -- and playing catch-up to Google, a nimbler, more established (in Web 2.0 world, anyway) competitor. None of that will be easy. Just ask IBM, which had considerable trouble shifting its core business away from mainframes years ago.

But if anybody can pull it off, Redmond can. Windows and Office, while they might not be the products of the future, are still cash cows in the present. They could cover the cost of snapping up Yahoo, loans and all. And with new, Web-savvy blood coming in to run things -- think Ray Ozzie and Stephen Elop -- Microsoft seems serious about weaning itself off of a reliance on old, standby technologies.

So, what does all this mean for partners? Well, we're not sure yet. Nobody is. It might be time, though, to start thinking of what your place in a Microsoft SaaS universe will be and what kinds of transitions you'll have to take your business through to get there. Then again, you probably should have been thinking about that for a while, anyway.

Of course, a potential Microsoft-Yahoo deal could turn out to be a disaster, or just a flop. But it could also be the catalyst to jumpstart a rivalry with Google that could actually end up doing both companies and the industry as a whole a lot of good.

That is, of course, if the deal happens. Like the Pats in the Super Bowl, nothing is a sure thing.

How do you think a Microsoft-Yahoo deal would affect your business? Sound off at [email protected].

Posted by Lee Pender on February 05, 2008