Yahoo Deal Is Big, but Is It the Next Big Thing?

mattsgotredhair brings us a NYTimes article discussing how Microsoft's bid for Yahoo contrasts against one of the core philosophies of Silicon Valley: looking forward. From the Times: "Microsoft may see Yahoo as its last best chance to catch up. But for all its size and ambition, the bid has not been greeted with enthusiasm. That may be because Silicon Valley favors bottom-up innovation instead of growth by acquisition. The region's investment money and brain power are tuned to start-ups that can anticipate the next big thing rather than chase the last one. 'This is the very nature of the Valley,' said Jim Breyer of the venture capital firm Accel Partners. 'After very strong growth, businesses by definition start to slow as competition increases and young creative start-ups begin to attack the incumbents.'"

Could it be ....

[Anonymous Coward]

That it ends up hurting the US economy ?

This is what MS did before and it worked back then

[donscarletti]

It worked when Microsoft bought DOS, it worked when Microsoft bought Hotmail, it's current biggest web service. Microsoft does try to innovate, but most often that stuff just falls flat on its face, when Microsoft buys other people's products though, that's when they hit a winner. Saying that the most wealthy, successful software company in the world is doomed to failure for going against silicon valley reasoning is futile when that's what they've always done and made more than anyone else while doing.

Re:I really do not get it...

[Anonymous Coward]

Ballmer wants market share. Logic be damned!

Re:I really do not get it...

[Anonymous Coward]

You can't compare the HP/Compaq merger to a Microsoft/Yahoo! merger. First of all, infrastructure plays a much greater role in the Microsoft/Yahoo! scenario. Yahoo! is heavily run on open source software, including PHP, FreeBSD and Linux. It won't look good for Microsoft if so much more infrastructure is running on software they have belittled for years now.

So either they'll have to do like they did with Hotmail, and let it run on FreeBSD until they've basically re-written in from scratch to use their technology. Of course, that will be very costly, and likely nowhere near as good as the original (like we've seen with Hotmail). They'll be in the same position they are now, except having spent far more money.

The HP/Compaq merger was far more about combining product lines, management teams, R&D, support teams, etc. That is, it was more about an organizational merger, rather than a technological acquisition.

Favors bottom-up innovation? What about Cisco?

[G4from128k]

Cisco is Silicon Valley's poster child for acquired innovation -- acquiring over 100 companies in the last 10 years (see http://en.wikipedia.org/wiki/Cisco_Systems_acquisitions [wikipedia.org]). Letting someone else's VCs pay for your R&D is a great way to always have the best of the best technology. And don't most of the Valley's VCs and "brain-power" cater to this growth-by-acquisition model. Isn't the exit strategy of a VC or serial entrepreneur defined by getting a Cisco, Google, or Microsoft to by the company?

Re:I really do not get it...

[ergean]

And this is the stupidest way to get it.

All they get by this is a lot of duplication of services, they probably will attempt to merge them... and drive all those who never liked Hotmail and/or MSN to say pas and go for Google.

So if they get yahoo they should not count on its market share.

I'm not against MS, but I don't like they way they are present on the web.
Just for fun... to see what I'm saying - go to http://microsoft.com/ [microsoft.com] with firefox and then with IE and watch for the differences...
If for the front page of their main site they can't keep it the same across browsers think how would you interact with the services they provide, you'll have to use the tools they want you to use, not the ones you want to use.

In the end MS+Y!=MS... not thanks.

Re:Is Silicon Valley right?

[Anonymous Coward]

Indeed. The Silicon Valley VC philosophy seems to be:

1. Invest in 10 startups while they are cheap.
2. Push them grow as fast as possible.
3. One in ten of the startups make it, and the rest implode from capital and personnel bloat.
4. Cash out of the one successful startup for 20x the initial investment.
5. Go back to step 1.

Certainly, this is a money-making strategy for the VC. It's not necessarily good for the 9 failed businesses, some of whom might have been profitable if they had taken a more conservative growth approach. (And some would have failed no matter what, with or without VC juicing.)

This is about realestate, not rewarding innovation

[postbigbang]

Lots of users. Lots of places to hang signs and ads. Lots of groups. Lots of apps. Lots of little businesses.

Yahoo is a country with lots of geography. That's what Microsoft is buying.

It's not a new widget. It's not Web 2.0. It's not some sort of way-kewl social site with a new innovative bent.

It's the real estate. One more time: Microsoft is buying web real estate, not bottom feeding, not buying rotten tech.

Re:I really do not get it...

[Herschel Cohen]

Well it really was not an offer. As I read it, it was a statement of intent. That is, most likely they plan to acquire shares from holders that are willing to sell directly to MS at a premium. Once a sufficient percentage is obtained they move to take over the company by a proxy vote. Control is final after a positive review by the DOJ and the EU.

This is a hostile take over where the purchaser could care less what either the board and the management thinks or responds.

Re:This is what MS did before and it worked back t

[Herschel Cohen]

Saying ... most wealthy, successful software company in the world is doomed to failure ...

I don't read it that way, however, in business studies attempts to merge companies with differing cultures can devastate the acquiring company. Moreover, the business being fast paced can doom the pursuer to a more distant relative standing than the sum of the two companies' starting market shares. Take one of the examples you cited: HotMail, how long did it take MS to get that right? The danger is they may not have the time to get it right.

I really doubt that MS will disappear due to this or other missteps, but that does not mean the probabilities are nil to none.

But they already have Search

[msgmonkey]

From what I can remember the aquisitions though have always been for technology they don't already own or do own but inferior. If it goes through they get Yahoo market share, but if they tinker with Yahoo too much most likely people will leave Yahoo since if they wanted to use Microsoft Search they would do. Market share is all well and good, but even with their combined market share they would still be a long way behind Google and Yahoo has nothing that I can see that could be classed as a "Killer App". If the sale does go ahead what is going to happen? Are they going to call it Microsoft Yahoo and have the run side by side with their current offerings? Also Yahoo is also a failing company with no direction, they even brought back an original founder to get things moving again but it has n't made any difference. Personally it does n't make any sense to me, but maybe I will be proved wrong time will tell.

Re:This is what MS did before and it worked back t

[jonbryce]

But Microsoft usually buys really small companies with good products where they can use their marketing skills to build up market share. Yahoo is a bit different to their usual takeover target.

Re:This is what MS did before and it worked back t

[Aikar]

Hotmail the biggest web service? Just cause you have 5 billion spam email accounts doesnt make it the biggest, Id say its one the biggest used for disposable email spam accounts. Id say gmail is trumping Hotmail.

Surely MS isn't the Ravenous Blugblatter Beast

[fishthegeek]

Take one company that isn't being successful at competing with Google.
Add to that, one more company that isn't successful at competing with Google.

What you end up with is one much larger company that isn't able to compete with Google.

I find it truly inconceivable that someone thinks this is a good idea for either company. If Yahoo were truly on the bleeding edge I could actually buy this proposal but Yahoo has been in catch up mode itself. The only thing I believe that this does for MS is provide a much larger market share for Google to take from them.

Re:I really do not get it...

[blind biker]

Microsoft has what Yahoo alone doesn't: an almost limitless supply of cash. MS can afford to offer deeply discounted prices to advertisers in order to to eat up Google's marketshare. After they "cut off the air supply" (this is a well-known Microsoft expression), they can start making money from Yahoo. It may take several years, but Microsoft is in no hurry, as long as they can continue selling whatever OS they produce.

Re:What about Google?

[riseoftheindividual]

they still have that "edge" that seem lacking in larger companies.

Like Yahoo and Microsoft for example.

Re:Is Silicon Valley right?

[Mr. Underbridge]

Hell, you're being kind to them. Silicon Valley's preferred method is to fork it right around step 2 and go to a step 2.5 - hype the shit out of the company and hold an IPO before the company collapses, pushing losses onto hapless investors who thought they could get rich quick.

Re:I really do not get it...

[Chriscypher]

"More companies die of indigestion than starvation."

("The HP Way," Hewlett-Packard co-founder David Packard, page 142)

Re:I really do not get it...

[berchca]

The best comparisons I can think of are other major software mergers: IBM and Lotus, SUN and Netscape Server Division. Of course, both of those were massive failures. It seems to come down to this: a company is ailing, so another company buys them either thinking they are going to fix them up or cannibalize them.

I can't see why MS would do a better job of handling Yahoo's business than they did, so while this merger will give MS a boost, it would probably be the end of Yahoo.

Re:MS loses to Google because of their choices

[DerekLyons]

Look at Hotmail and Gmail. Hotmail was a very early web email service. MS bought them. Then they just let it sit there. MS people saw Oddpost coming down the road, and they should have gotten all pumped up with what was possible. That's apparently what happened at Google -- someone saw that fancy Oddpost ajax email client, and said, let's do this better than Oddpost is doing it.

Yeah. And the result is that Hotmail has considerably more users than Gmail.
 
 

And there are stories floating around that yahoo people are saying -- there's no way in hell that we'll work for MS.

Yeah, right. It's easy to be brave and strong in the rumor mill - when the reality of mortgage payments sets in, they'll quiet down awful quickly.

Re:I really do not get it...

[pallmall1]

MS can afford to offer deeply discounted prices to advertisers in order to to eat up Google's marketshare.

They can cut the price all they want in order to get more ads and advertisers, but that doesn't mean they'll get more traffic. Marketing is based on the number of people who see the ad and their demographic. If MS cuts the price without a significant increase in traffic, they'll only be reducing the value of their existing base.

Re:I really do not get it...

[Locutus]

This is the ONLY way they get marketshare when they can't get it by leveraging their position on the desktop. And look what marketshare purchases did hotmail.com. They took those numbers and tacked them onto their new-ish MS Exchange numbers and for a couple of years drilled it into the market that Exchange was a contender against Lotus Notes. Purchased marketshare allows them to purchase mindshare. While that has never produced profits for them, it has controlled their competitors growth and therefore controlled that threat.

It does not hurt that they are just filthy rich with cash either. What other company can continue to lose billions annually on 80% of their business units, do this for at least a decade, and stock holders don't complain? The US Government does not count. ;-) Who else does this?

LoB

Re:I really do not get it...

[Locutus]

but profits is not high on the list of goals for the Microsoft/Yahoo deal. HP shareholders were pissed at how it was handled. With this Microsoft/Yahoo proposition, it's all about Microsoft purchasing mindshare and marketshare so they can LOOK like a contender. Right now, Google looks, acts, and is a mighty technical powerhouse and even Wall Street sees this. It makes Microsoft look like an old out-of-touch company and having Gates leave the company this year is not going to help.

So don't think that ANY Microsoft technology or purchase is about them getting direct profits from those deals. They need to protect their position on the desktop and and on the server. Heck, on the server, they had to go out and pay GoDaddy to host parked domains on Windows based server so the NetCraft marketshare numbers for Windows/IIS looked respectable. Until they started spending tons of money to companies like GoDaddy, Windows/IIS was heading into the dirt. It's not about profits, it's about mindshare and marketshare. IMO.

LoB

It's worse than that

[bADlOGIN]

There are a number of Open Source contributors working for Yahoo and allowed flexibility in the office to contribute
back to little things like PHP (Rasmus Lerdorf, creator of PHP is an infrastructure engineer), FreeBSD, Apache, and Perl.
I have trouble seeing these individuals wasting time doing a like-to-like conversion from open to proprietary
tools and platforms just because there's money waved in front of them. At that point, what Microsoft has purchased
is yesterdays tools sans the minds that made them work. Balmer's business blinded rush to "shareholder value"
has him pissing in the well of Yahoo's technical culture. I speculate the folks at Google are flooding e-mail and
voice mail inboxes to internal and external recruiters and candidates, licking their chops to let Microsoft force top
technical talent into their waiting arms.

In the meantime, I guess I need to run a checklist and remember what services to possibly switch over
to the Google equivalent of if this goes through. Microsoft can't have my money, and they can't have my
eyeballs directly for marketing bucks either.