Thoughts on the Microsoft / Yahoo Deal

The New York Times ran an interesting story today about the impact on Silicon Valley startups of the proposed $45B Microsoft / Yahoo deal. The main thesis is that continuing second-level consolidation might create a dearth of acquirors for the hundreds of startups who have take the $35B in venture capital invested in 2007.

“From a start-up and investor perspective, if there are more companies trying to vie for the same businesses, there are more exits,” said Bismarck Lepe, a former Google employee and now chief executive of Ooyala, a year-old video host and advertising company. “It’s not great for competition if there are only two acquisition targets instead of three.”

I, like many Silicon Valley strategy types wonder if the Microsoft / Yahoo deal is the final salvo in the last war. In many ways, Yahoo’s problem was they couldn’t get past the fact that Google stole Internet search out from under them. So the company was obsessed with re-catching Google, instead of — in classic Silicon Valley style — trying to beat them to next big thing. Most strategy types think Yahoo should have said: “We screwed up. We lost search. Deal with it. Now, let’s go find the next big thing.”

Much as Steve Jobs might have said: “I screwed up . I lost the PC market. Deal with it. Go find the next big thing. (In the “irony can be pretty ironic” department, the iPod is actually dragging Mac sales behind it. So the best way to improve the Mac’s market position was to focus on something else. How’s that for perverse?)

One more example of this “can’t let go” phenomenon because it’s so popular: SPSS. I got to know SPSS pretty well at one point about 6 years ago and I couldn’t help but feel the company had an unhealthy attitude about SAS. For SPSS, the same advice applies: “You screwed up. You lost enterprise stats / analytics to SAS. Deal with it. Let it go. And then figure out how to beat everyone to the next big thing.” (I don’t follow SPSS anymore so I have no idea if they’ve done that in the intervening six years. Hopefully they have.)

Somewhere there’s a probably job opportunity for “corporate strategy therapists” to help companies deal with this sort of anger and loss. But I digress.

Quoting a related Times article:

A Microsoft-Yahoo merger would give Web publishers and online advertisers “a more competitive and compelling No. 2” to Google, thus enhancing competition and consumer welfare, said Bradford L. Smith, Microsoft’s general counsel.

Here’s a good tool for corporate development VPs everywhere: if the best your $45B acquisition can do is create “a more compelling #2” than perhaps you should consider doing a different deal.

The question I have is simple:

  • Will this help Microsoft slow down Google by modestly wounding the advertising engine that provides all the funding for Google’s attack on Microsoft’s core businesses? (Think: the best defense is a good offense.)
  • Or, will this simply enlist Microsoft in Yahoo’s Sisyphean quest to catch Google in Internet search, infecting the acquiror with the acquiree’s disease?

My personal take is if they can execute it correctly it might work, but it needs to be part of a broader strategy. Effort 1: counter-attack Google’s core, not hoping to win, but simply to slow them down. Effort 2: Stop Google Enterprise from attacking Microsoft in on-demand apps and beat them to the cloud computing world of the future.

Ironically, you’ve got two huge companies and neither one is terribly good at selling to the enterprise. Perhaps while the behemoths are duking it out Oracle will step in and steal the enterprise-cloud computing market.

2 responses to “Thoughts on the Microsoft / Yahoo Deal

  1. Dave,I think you’re guilt of sloppy thinking here. Leapfrogging Google in search is hardly Sisphyean. There are plenty of intermediate stages between Web search 2008 at the one extreme, and what Mark Logic sells at the other. What you do doesn’t fit out on the Web. But what FAST does, for example, does fit.What’s more, as per , search is only a minority of the opportunity.Best,CAM

  2. david hurowitz

    not a shock the deal never went through, the corporate cultures were and are so far apart.

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