Yahoo Bid shows Microsoft on the Ropes

Ponca City, We Love You writes "One day after the announcement of Microsoft's plan to buy Yahoo, there is an interesting piece from the NY Times analyzing the reasons behind Microsoft's bid and proposing that the bid is a tacit, and difficult, admission that Microsoft did not get its online business right and that online losses continue to mount while Google makes billions in profit. Microsoft "finds itself in a battle where improving its search algorithms and online ad software is not going to be enough," writes the Times. With the Yahoo bid Microsoft is trying to buy a big enough share of the market to be a credible alternative to Google with online advertisers. "This shows just how worried Microsoft is by Google," says David B. Yoffie. "Microsoft has faced competitive threats before, but none with the size, strength, profitability and momentum of Google.""

Comments

Eh?

[Dan100]

How can a company that can afford to pony up $44.6 bn possibly be described as being "on the ropes"?!

Re:Eh?

[tomhudson]

"How can a company that can afford to pony up $44.6 bn possibly be described as being "on the ropes"?!"

Here, let me fix that for you ...

"How can a company that feels it has to pony up $44.6 bn possibly be described as being anything but "on the ropes"?!"

... and its not an "all-cash" bid. 50% Microsoft stock. At least they aren't paying in

At least they're not offering to pay in Bush coins ... yet!

Re:Eh?

[mrchaotica]

I wonder if the "strategy" was DRM and to adopt uncooperative practices. I guess that didn't turn out so well...

They're still pursuing that strategy, and it remains to be seen how well it turns out. They've lost the using-SCO-as-a-front gambit, but they're still fighting on the bludgeon-ISO-into-making-OOXML-a-standard and kill-OLPC-in-favor-of-Windows-running-stuff fronts.

I think MS really SHOULD improve that ...

[QuatermassX]

search algorithm ... it would certainly help make the "service" an actual service! Over the years I've watched as Microsoft has released meh product after meh product. Isn't that their real problem - when the vendor lock-in wears off, they have DAMN weak products.

I have never understood the popularity of Windows with consumers (beyond the obvious monopoly power they wield with personal computer manufacturers), I find their software mostly blech (frankly, anything NOT Word and Excel is just junk) and their online products and services NEVER work as advertised. NEVER.

If I were Microsoft, I'd try and refocus the company culture and align it with the interests of its customers and not ... well ... whatever hellish alliance of businessmen, content producers and bean counters they're currently serving.

I think the XBox 360 points the way, really ...

Re:I think MS really SHOULD improve that ...

[filbranden]

A perfect search portal with a perfect algorithm doesn't work.

This isn't about the search algorithm. Microsoft is clearly after Yahoo's user base and users that go to Yahoo for search. For what it's worth, they could scrap Yahoo's search algorithm completely, replace it with MSN, as long as they believe that users will still go to Yahoo after that.

Of course, Microsoft has done that before. Look at Hotmail for instance. They couldn't stand the fact that it was not Microsoft technology under it, so they just had to "improve" it on their way. Results? After Microsoft's "improvement" Hotmail ceased to be #1 in webmail and now must be around #957 in market share.

It's probable that if they finally buy Yahoo it will be just the same. Users will deflect in masses. First it will be the users that leave Yahoo because they don't trust Microsoft (say around 5-10%), then it will be the users that leave Yahoo because Microsoft "improves" the service with their own ways of "improvement" (say around 10-20%), and finally it will be the users that leave Yahoo because Microsoft will introduce its silly single platform locked-in technologies, like Silverlight, and they will try to integrate Yahoo with the desktop, which will make Yahoo no longer as "convenient" it is from the point of view that you can access it anywhere without restrictions (say around 20-40% users leaving because of this).

In the end, Yahoocrosoft will lose from 35% to 70% users, and Google will be a yet bigger #1 with a distant #2. I think Microsoft buying Yahoo will be bad for the search/ads market, but it will be good for the OS/desktop/browser market, because Microsoft will certainly weaken from this. I think it's worth to give Google that much power if we get rid of Microsoft in the process, so I'm happy with this and I actually want it to happen, as much sorry I am for Yahoo, but hey, if they take the bid, they're just asking for it.

If I were Microsoft, I'd try and refocus the company culture and align it with the interests of its customers

Yes! Exactly my point. If Microsoft tries to think "as Yahoo does" and doesn't intervene that much, it could use its money and power to actually make it grow and defy Google. But Microsoft is too clever! They'll want to turn Yahoo in Microsoft, they'll want to use their MSN knowledge to grow Yahoo. They'll want to "improve" Yahoo services by migrating them to Windows servers (as with Hotmail), they'll want to "leverage" the desktop on Yahoo services. That will be their biggest mistake. But it's inevitable, there's no way that Microsoft will buy Yahoo and not do that.

The bid is public ... so

[Gopal.V]

I think the public nature of the bid suggests that private behind-closed doors negotiations have failed and they're trying to attempt a near-hostile takeover. YHOO shares have jumped about 10 USD over friday and a lot of us have been getting rid of them. And I wonder who's buying all of these, in reality? Someone who'd pay 31 dollars for a share, when they could instead buy it in-market at 28?

I'd really hope it was some sort of last-ditch effort to put shareholder pressure onto Jerry Yang (yes, I do work at Y! and I do have a very nice job, which I'd be really sad to leave ...). And yeah, read my domain to figure out exactly why I would have to :)

Here's to hoping that it doesn't happen (for YUI, flickr, freebsd, hadoop and del.icio.us!)

Microsoft failed the minute

[Progman3K]

they stopped giving what the CUSTOMER wants.

Whenever you push an agenda different from the client's, the client walks.

SOP

[the_skywise]

This has always been Microsoft's way. They bought "Word" and (depending on how you interpret it) they bought "Dos".

Not 10 years ago people were proclaiming the death knell for Microsoft because it missed the internet... then they bought "Internet Explorer" and... well you know how that turned out.

Microsoft has always made stumbles. Where they've excelled is their resilience to find the right solution and implement it in a good enough/cheap enough fashion that it doesn't make sense to buy the other guy.

Can they do this against Google? From a customer stand-point I'm not sure. I'm not just going to use Microsoft Search(tm) over Google so long as Google remains free and provides decent results. So Microsoft can't really win there. But they can steal ad revenue from Google by making their business/web-ads side more appealing to businesses. Get that, control the ad market and you'll be able to embrace and extend Google...

But this is a sign that Microsoft is "failing"? Not on your life...

Re:SOP

[waa]

I once saw a site that had a detailed list of all the companies and the technologies that Microsoft has purchased over the years. The list was staggering...

In addition to DOS and Word that you mentioned, one thing that people might not know is that Microsoft bought a company called "Webcorp" in the '89-'91 range (I can not recall exactly). This company had created a rather slick Lantastic-like networking system on top of DOS. Being a BBS sysadmin (sysop in those days...) I was one of their beta testers and as a thank you for being a beta tester, I was always given the latest version of their software and watched it grow fro "functional" to "excellent."

long story short... Microsoft bought Webcorp and the Lan technologies they had created and hey... What do you know... Suddenly, out of Windows 3.1 was borne "Windows For Workgroups". Now with NETWORKING!... Another Microsoft triumph and INNOVATION...

The point of my long winded story? Microsoft is _NOT_ an innovator. Unless you define innovation as: a. Purchasing companies, or licensing technologies in order to incorporate them into an existing product or b. Purchase companies or technologies only to shelf said technology in order to promote their less capable, more buggy product.

I for one have been watching this endless cycle for years now (since '89 or '90) and have been fed up with it since just about that time. :(

Re:SOP

[Khuffie]

May I ask...who cares if Microsoft is not an innovator? In your example, Microsoft recognized a technology that, per your admittance, is excellent. So instead of them developing their own networking system for Windows, they realized that incoporating an already developed and tested system is far better for them and their users.

Everyone purchases other companies or licenses technologies from them. Guess what? OS X? Built off BSD and NextOS. Safari? Built off webkit. Google purchased Picasa, Sketchup and Earth Viewer (ie Google Earth). This 'endless cycle' you speak off is not limited to Microsoft.

Salon had a very similar piece today

[Scareduck]

Salon had a very similar piece today in its "How The World Works" column by Andrew Leonard. Leonard can be a very dogmatic statist when it comes to economic policy, but I think he pretty much nailed the tenor of this deal:

Except that this Microsoft bid, made at the late date of February 2008, even if it can't be considered a move made out of desperation, is at the very least a move generated by massive frustration. Try as it might, Microsoft cannot gain ground on Google -- the company that currently claims ownership of the soul of Silicon Valley (as in -- we can have fun and make a bazillion dollars). So where once a Microsoft bid for Yahoo would have been seen as presaging the long-awaited total triumph of Gates and Co. over the freewheeling Valley, now all it does is prove that winning every battle it fights is no longer a Microsoft birthright. Microsoft is playing catch-up from further behind than ever. The future requires a major beachhead on the Web. Microsoft, after at least a decade of Herculean effort, still doesn't have one. So it wants to buy the biggest one it can find.

I wonder what effect a Microsoft buyout of Yahoo would have on various open-source initiatives Yahoo is involved in. Microsoft wouldn't be so dumb as to kill them off immediately -- that would be bad press, and possibly invite retaliation from the next Attorney General -- but their history at Hotmail indicates a revulsion to all things open source.

Ballmer's in charge

[MLCT]

He is now in the driving seat. While MS have always bumbled along with things I now see this getting a bit personal and a bit more precarious. Ballmer is an interesting character. A lot on here (probably rightly) have characterised him as mental. He seems like a deranged and obsessed guy. I mentioned MS "bumbling" along because that is what they did under Gates (sure they embraced, extinguished), but they never took vast risks. Now that Ballmer is in charge I can't shake the feeling that MS's future is a lot more risky - for Ballmer's personal obsession with "destroying" Google could take MS into a very different neighbourhood from Gate's more careful approach. Ballmer is now starting to risk the family silver on beating Google. You only have to look at the comments from the conference call yesterday to realise it - "The market continues to grow, and the leader continues to consolidate position," - never mentioned them by name, but he is clearly obsessed about Google - if I were a shareholder I would be worried that his personal obsession is impairing his business decisions.

With a recession, ad buys with #2 get cut.

[tomhudson]

The 'customers' in the search engine industry are the advertisers, and the main interest of advertisers is reaching as many consumers as possible.

And in a recession, advertisers scale back their ad buys. Instead of buying in the top 2 in any market, they buy from #1 only. Even Microsoft admits that Google is #1.

"Don't be evil"

[Dammital]

A lot of people have faith in Sergey Brin's corporate motto. The creation of class B stock at Google, which gives Sergey and Larry ten votes for every share, ensures that they will be able to keep Google from being corrupted, so long as they themselves remain uncorrupt.

Microsoft has no such public image. They were found to use their monopolist position to kill Navigator and hurt Java. Their CEO is belligerent and takes shots at the FOSS community. More recently they've tried to buy the ISO vote for OOXML. They don't trust their own customers, as evidenced by periodic, rude and disruptive Genuine Advantage challenges.

We're about to enjoy a big, fat, open class C block in the US spectrum, courtesy of Google. They purchased Android, and then opened its SDK to the world. In contrast, Microsoft has promoted hardware restrictions, media restrictions, and discourages use of unemcumbered codecs such as Ogg Vorbis.

Which company would you rather do business with, all things being equal? That is Microsoft's problem. They can spend all the $billions they like on buying market share... but they can't buy a reputation. When the FTC clears the Yahoo deal... Microsoft will still be Microsoft.

MS buys Yahoo so Live can compete with Google?

[David Rolfe]

Live can never be successful as a competitor in search because verbing its product produces absolute nonsense. This is a case where Microsoft's rather unimaginative 'penchant' for naming its products after common words really bites them in the ass. Their products become generics from the start (vs. xeroxing, kleenex, bandaids, googling, etc.) "My GUI has windows. My office software works, but rarely excels."

Evidence that Live search will never dominate in mindshare:
"I Lived for my old highschool classmates." Huh?
"Just Live my resume." Ok.
"You guys just sit around in your mom's basement Living for pr0n." And?

If people are using Live to google shit, they've lost.

(Captcha is 'hopeless'.)