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.""

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 [blip.tv] ... yet!

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 ...

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 [yahoo.com] 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 [php.net], 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!)

MSFT is learning ...

[Anonymous Coward]

what it's like to compete in a more open field. Since they can't force Windows users to use MSN Live, they're not getting any sort of business they wanted.

Frankly, I'm glad. Maybe 10 years from now we'll be buying individual software products from MSFT (like say Visual Studio) without the excess baggage they current force on people (e.g. vista).

Microsoft vs Google

[perlchild]

I wonder if any of Google's customers go there because it's more competitive, has better mindshare, etc... Or if a part of Microsoft's insuccess lies in its reputation, etc... Meaning if they are trying to go anywhere but Microsoft, merging with Yahoo would just doom Yahoo too...

Any thoughts?

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...

Salon had a very similar piece today

[Scareduck]

Salon had a very similar piece today [salon.com] 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 [salon.com] (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.

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

[MonoSynth]

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

The 'customers' in the search engine industry are the advertisers, and the main interest of advertisers is reaching as many consumers as possible. A perfect search portal with a perfect algorithm doesn't work. Buying the world's number two might work.

Re:Eh?

[Anonymous Coward]

People aren't buying Windows Vista and Office 2007 because they have Windows XP and Office 2003

Despite what you may read on slashdot, all other evidence suggests that this simply isn't true.

schadenfreude for Microsoft and Giuliani

[victorvodka]

Their comeuppance is happening at the same time, so (when I'm not thinking consciously) I have trouble distinguishing in my mind the feeling of schadenfreude I feel for Microsoft (particularly the Vista OS) from the one I feel for Giuliani.

There's no way Microsoft can catch Google just like there was no way anyone could catch Microsoft. That train has already left. The only way to catch Google is for someone to develop something entirely new that can be dominated with new network effects. Something new like Facebook or Ebay.

MS a victim of what made it a success

[C0vardeAn0nim0]

When microsoft started, it was a young company, with a new view of technology. they "got" that microcomputer toy thingie a lot better than traditional mainframe and minicomputer makers like IBM, DEC, honeywell, etc. this allowed them grow exponentially, based not only on their own capabilities, but also on the series of mistakes and fuckups of the competition.

well, now it's against them. now THEY are the "traditional" guys with a backwards vision of computers, while google, yahoo and - surprisingly - apple have a grasp of how people see the digital world. google and yahoo caters to the connected crowd, and apple to the people that sees digital gadgets as fashion statements, two things MS with can't get a foot on.

of, course, MS is not going away anytime soon, the same way IBM, unisys, bull and HP are still around. what they need to do is recognize that they're pretty much irrelevant in those two markets, find a stable but big niche and stay on it. we don't see HP or IBM making atempts on the on-line or digital fashion markets, yet they're still huge and profitable.

so, here's a tip for microsoft: leave online services and fashion for the likes of nokia, apple, google, yahoo, etc. and go take care of what you do well: corporative operating systems like win2k (the only version of windows i dare saying i liked) and office tools.

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:Salon had a very similar piece today

[Anonymous Coward]

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

That was a good joke! We can trade humorous but completely irrational expectations of Microsoft all day!

Then we can both duck as the chairs fly. They'll probably be ejection seats with open source developers at Yahoo! strapped into them!

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.

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.

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.

Microsoft: More money than brains.

[Futurepower(R)]

The Bush Coins video is excellent!

Not only does the high price show Microsoft's desperation, it indicates that the real lack at Microsoft is not money, but brains. Yahoo is only a web site. The fact that Microsoft has not been able to compete shows the serious mental poverty that is a common symptom of those who have put money first in their lives. (Bush and Cheney are other examples, as the video shows.)

Re:Want to know why Google is beating MS?

[STrinity]

Want to know why Google is beating MS, I mean besides the fact their search engine rocks?

Because Sergei Brin looked at the way MS got pilloried in the mid-90s and decided that Google should have a propaganda arm devoted to convincing people that the company isn't evil. Thankfully for Brin, people are gullible and will believe simple assertions of Google's goodness even after Google reaches the point where they have more information aggregated about every person on Earth than the NSA could ever dream about.

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

[wertigon]

Silverlight might as well be. I for one don't trust Microsoft will keep up their cross-platform commitment in the slightest; As soon as it's beaten Flash to the ground, the Mac version will mysteriously disappear and the Linux version will be lacking any significant modules. And all other platforms are unable to play the content.

Re:SOP

[Skreems]

And hell, being bought out by Microsoft has become a tradition. There are dozens of startups out there doing their damndest to TRY to get bought out by Microsoft. If you can prove an idea in a startup and get enough word of mouth to get noticed, it's a much, much quicker paycheck to let Microsoft buy you. No slow building of your customer base, no bugfixes, no updates to support new APIs in Windows. Just a quick windfall payment, and then all those pesky details become Someone Else's Problem.

"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 [justice.gov] 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 [os2world.com]. They don't trust their own customers, as evidenced by periodic, rude and disruptive Genuine Advantage challenges [wikipedia.org].

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 [wikipedia.org], media restrictions [wikipedia.org], 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.

Re:Want to know why Google is beating MS?

[Anonymous Coward]

Google's approach was different, when Msn and Yahoo had heavy, slow loading websites over the 56K modem, google had this simple, quick web page providing amazing search results. And as people grew internet smart, they preffered quality over quantity. And Google was able to convince everyone that it's the good guy. Now when I open my Gmail and see that the advertisements closely match the text in the emails I just received...I shudder. How many searches, how many emails, for how long do they keep all this? And which government wouldn't want to have this perceived 'good guy' that knows so much about so many as a close ally? I think that Google isn't any better than MS and in some way it is much worse. Btw, I switched back to using my Yahoo email account.

Re:Eh?

[HW_Hack]

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

I hardly find this comment "insightful" --- both MS and Intel were at the right place at the right time when the PC was born. Now to be fair both companies also did some good work in the '90s and up to around 2001 (2001 saw the release of XP and the Pentium 4). Thus leading to their 80% - 90% market share positions today. And with that 80%-90% comes a ton of profit so frankly $44 billion is a chunk of change but by no means is a "sign of good health or innovation".

However both had major fuck-ups or major missed opportunities during the earlier years - and continue to struggle today to see the trends - make the right choices - or make the hard choices.

For MS alone:
- Remember Netscape ? MS totally missed the whole Internet trend
- Windows ME
- Their inability to grasp the net as a business model (i.e. Google)
- Making big promises while not focusing on fixing problems - doing neither and producing Vista

And these are just some of the biggies --- now both Apple and Linux are nibbling away at the market space

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

[Anonymous Coward]

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.

Here's hoping MS might in fact not pull a Hotmail. Assuming they keep Yahoo's current net revenue level and scrap their current Online division and its bleeding of red ink, it's going to take several decades to pay off the purchase (how many depends on how one values the assets Yahoo has; at best, the price seems to be about $20bn larger than the actual value) Factor in an expensive transition to 'Microsoft technologies' and the time interval will increase quite a bit, as the immediate income will drop abruptly due to massive disruptions. In the end, this looks very much like the biggest winners in the case the purchase goes through would be Yahoo's shareholders, while the biggest losers would be Microsoft's shareholders.

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.

Re:More than near-hostile...

[adrianmonk]

From a business perspective, I think Microsoft has to fuck with Yahoo. The company's profit margins have been falling hand over fist for the last couple of years, and they've got way to much bloat, as evidenced by the fact that they will have to lay off 1000 people this year.

From a business perspective, I think somebody has to "fuck with Yahoo", but I don't think Microsoft is necessarily qualified to do it right. Microsoft and Yahoo compete directly in the same market (online search/portal), and Microsoft has more resources to put behind their efforts, but Yahoo has double the market share of Microsoft. Translation: Yahoo is doing kinda badly, but Microsoft is doing worse. Yahoo does not necessarily have a winning strategy, but Microsoft doesn't either. Change is probably necessary, but there is little evidence to point to the idea that Yahoo would be better off with Microsoft in control than some other alternative.

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

[msebast]

Is it paranoia when they really are out to get you? Wertigon's description is exactly what happened with Internet Explorer for Macintosh and Solaris. It's not that far fetched to think they might do the same thing again.

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'.)

Silverlight

[falconwolf]

Silverlight might as well be. I for one don't trust Microsoft will keep up their cross-platform commitment in the slightest; As soon as it's beaten Flash to the ground, the Mac version will mysteriously disappear and the Linux version will be lacking any significant modules. And all other platforms are unable to play the content.

I guess as long as you're willing to admit that you're basing that on your own paranoia rather than the current state of reality then there's not much I can say to argue with it.

There are very good reasons to believe MS will in fact do this. MS has already threatened [yahoo.com] Apple [bbc.co.uk] to discontinue [news.com] Mac software.

Falcon