On the eve of the deadline for Yahoo! to accept Microsoft's offer, I have a few disorganized thoughts that have been going through my mind I want to get down:

At first, I thought this merger was a horrible idea. It's easy to dismiss this idea on the obvious differences: completely different technologies, different cultures, Microsoft's lack of focus, etc. But the flip side will (one day) make an interesting b-school case study.

The advertising angle

The reasons why Facebook drew Microsoft's investments are probably playing a factor in the Yahoo! bid. Facebook's value is that it spies on you (Google, too). With Beacon, Facebook managed to let the spying extend to other sites like your Blockbuster rentals and your Overstock.com purchase - Facebook, in essence, is supposed to be the hub for all your internet activity. All your friendships, all your purchases, complete with a personal user profile which does the demographic targeting ... in one location (a marketer's wet dream). The current race for online advertising companies (Google, Yahoo!, MSFT) is to consolidate user accounts into one location - the more people use a single sign-on from these services, the better they can track their usage.

Consolidating Microsoft's Live and Yahoo!'s user accounts into one massive database ... will give Microsoft a huge leg-up
against Google when it comes to the single sign-on war. And even though Google kicks ass, let's face the facts - Yahoo! is more widely adopted for its consumer brands. I can look at the email addresses used for sign-ups at Tabulas and easily see Yahoo emails are used far more frequently than Gmail.

The technology angle

Ray Ozzie finally is bringing Microsoft up to speed on the importance of the web and its relation to the PC. I won't get too much into the details, but he's basically saying all your data can be synchronized through a cloud on the web. All your mobile devices, all your computers... syncronized. When you look at the way Microsoft has been building out Live ... it's pretty much a replica of what Yahoo! and Google have already done.

I know there's a huge discrepency between Yahoo's LAMP stack expertise and Microsoft's stack ... but in today's world, does it really matter? I think Deki Wiki is a perfect example of how much it doesn't matter anymore ... backend is written in C#, front-end is written in PHP. And it works perfectly.

You have to think that Microsoft, in the past, always pushed its development tools so they could control the stack ... maybe they finally realized in a REST-based world that controlling the stack is nearly impossible, and that trying to fight the open-source Linux battle on servers is absolutely pointless ... so they're now playing on both sides of the fence. Does it really matter if Flickr is running PHP or .NET in today's world? All that really matters is their API, and how devices can take advantage of it.

I've had only a passing run-in with the Microsoft's open-source labs, but the impression I've gotten is that they are taking open-source seriously. Maybe not as a business model, but they realize it exists, and they need to open up to it. And that's pretty promising.

. . .

Given all this, is it really possible that Microsoft can walk away from Yahoo? With Yahoo, they can immediately boost their advertising business and they can absorb a company that has had great experience building products with open-standards (Flickr, Delicious) which could easily bootstrap Microsoft's Mesh. Imagine a single company with the ability to build powerful client-side software (no matter what you want to believe, client-side software will always play a huge role) and the network to syncronize and distribute it. Google's limited by its ability to only deliver web-based software (and I don't care what you say, Google Docs sucks compared to MS Office). Google is just starting to make splashes with Android, where they can have a more powerful say in controlling the stack of a device (even if it is just a mobile device).

BillG had the foresight to have wanted to sell software subscriptions, but he was a few decades too early. People on the web are already used to paying subscriptions - wouldn't it be sweet (for MSFT) to charge $200+ for Office, then charge a monthly fee on top of that to keep it syncronized? Cash money, in the bank.

If the vision of Microsoft Mesh is the future, I don't see how Microsoft can walk away from Yahoo.

Disclaimer: I'm long YHOO, if the merger goes through, I'll be sure to go long MSFT.

Posted by roy on April 26, 2008 at 12:10 AM in Ramblings | 1 Comments

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Comment posted on April 30th, 2008 at 07:23 AM
44 billion is a good reason to walk away.

msft has to believe the value added to the whole has to increase (and significantly) to make it worth it.

A lot of things make sense from a combined technology world. i.e. TiVo should be bought out by comcast or twc or amazon =P. yada yada. But when you factor in purchase price it changes everything.

I mean i get it.. but is yahoo really worth much more than 44 billion?

then again... they *should* take the offer. Jerry yang is just posturing IMHO.