Does anybody think Microsoft/Yahoo is a good idea?

Anyone? Anyone? And what plan would work? Anyone, anyone?


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Farhad Manjoo
February 5, 2008 1:10AM (UTC)

So now we know how Google's going to play it. Yesterday the company posted its most detailed response yet to Microsoft's announcement of a takeover bid of Yahoo. The search giant isn't on board, predictably: "Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?" Google's chief legal officer, David Drummond, wondered in a blog post.

Microsoft has a history of regulatory offenses, Drummond added, and "policymakers around the world" should thus carefully examine the deal, especially with regard to the power that a combined MS and Yahoo will have in the Web e-mail and instant messaging markets.

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Drummond takes a just-throwing-this-out-there tone, but behind the scenes Google appears to be doing what it can to make trouble for Microsoft. Multiple outlets, citing unnamed sources, reported that Google CEO Eric Schmidt called Yahoo co-founder Jerry Yang over the weekend to offer help against Microsoft.

Google's doing what any rival would do, and considering that Microsoft interfered with Google's purchase of DoubleClick last year, you could consider this a kind of payback. Google probably can't stop the deal, but it can delay the merger, and delay helps Google -- during the long months of uncertainty about the deal, MS and Yahoo will lag.

Which, of course, leads one to ask again: Microsoft, why do you think this is a good idea? How ever do you think it will work?

As tech journos digested the news over the weekend, virtually everyone with a blog -- this a very bloggy crowd, naturally -- pointed to problems with the deal. On Friday I described why I thought this couldn't end well; nothing I've read since then has given me any thought the other way.

Daniel Lyons, the Forbes writer who blogs as Fake Steve Jobs, added a particularly interesting bit. Several years ago, back when Microsoft was unbeatable, Lyons asked Microsoft CEO Steve Ballmer about how the potential merger of two of Microsoft's competitors would affect its business.

Lyons paraphrases Ballmer, "It's like taking the two guys who finished second and third in a 100-yard dash and tying their legs together and asking for a rematch, believing that now they'll run faster."

How does Ballmer think this merger will be any different? Two of Google's competitors clumsily tie themselves together and expect that that strange agglomeration will somehow amount to something other than a strange agglomeration. Seriously? How?

For instance, take this problem: Microsoft is wedded to Windows and Office, its cash cows. In order to succeed, though, it needs to innovate around those monopolies, to develop applications that can compete with "cloud computing" initiatives like Google Apps -- but that may also present competition to Windows and Office.

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How will a combined company deal with that basic dilemma -- that Microsoft may need to cannibalize Windows to save itself -- any better than MS has on its own?

Or, this: Neither Microsoft's nor Yahoo's search advertising program is as profitable as Google's. (That is, Google makes more money per search than does any other company.) This has been so troubling for Yahoo that it has seriously considered ditching its search ad program altogether and outsourcing it to Google's technology.

So, when Microsoft buys Yahoo, what will it do -- what can it do? -- to change that? Throw money at developing a better search ad program? The trouble is it's done that. How would a merger of two companies composed of radically different cultures create a better ad platform?

So what should Microsoft and Yahoo do to compete with Google? If a combined company won't work, what will?

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Henry Blodget -- yes, the same high-flying fellow from the '90s -- has a good idea. Instead of buying Yahoo, Microsoft should invest in the company, gaining a 51 percent share, giving the company newfound resources with which to fight Google.

There are several advantages to this arrangement. First, there's no period of uncertainty during which people are waiting for the merger to go through. Second, the stand-alone company "will be free to do whatever is necessary to maximize the value of its own business, without having to worry about whether this hurts Microsoft's core business," Blodget writes.

And better: "Microsoft doesn't need to do everything itself: Microsoft's shareholders will benefit from the success of this combined entity (as will Yahoo's), even if the entity ends up hurting Microsoft's core business."

This seems like a much more sensible arrangement. Both Microsoft and Yahoo are getting crushed by Google. They need to do something drastic. The merger is certainly drastic, but unfortunately it won't work.

But a strategic partnership -- now there's something that could give Google chills.


Farhad Manjoo

Farhad Manjoo is a Salon staff writer and the author of True Enough: Learning to Live in a Post-Fact Society.

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