05.04.08
Microwhen?
For now Microhoo is history. With Steve Ballmer walking away this weekend from Yahoo’s $37/share demands, inboxes are bound to be overflowing Monday morning with al the postmortems.
We’ll keep ours short and sweet. It’s obvious why Microsoft ditched its otherwise successful M&A model to snag Yahoo: it’s in the unusual position of playing underdog, in this case, to Google’s online ad machine. It’s obvious why Yahoo turned down what is probably going to be the best offer it’s going to get: if it must surrender independence, it’d rather do so with Google in a way that keeps the rank and file, not to mention the antitrust folks happy.
One of the obvious arguments against the Microhoo deal is that Yahoo’s software platform is largely open source, while Microsoft’s obviously isn’t. But the open/closed source dichotomy shouldn’t be such a deal killer because Microsoft of late has shown welcome pragmatism toward open source, as evidenced by Sam Ramji’s keynote to EclipseCon a couple months back.
As we noted when the deal first surfaced, Microsoft faced a similar situation back roughly 15 years ago when the company was blindsided by rise of the Internet. At the time, Bill Gates called a management retreat and effectively steered a U-turn. This time around, Microsoft is punting rather than reaching back into its bench. Admittedly, life’s more complex today; when the modern web emerged, you had Netscape, which had market penetration but no business, whereas today with Google, Microsoft has met its match. Also, there’s the question of whether Ray Ozzie really has the moxie to fill Gates’ shoes.
There’s obviously no shortage of debate going round.
Veteran Microsoft watcher Mary Jo Foley couldn’t like the deal less. “Microsoft’s decision to walk restores my faith in the future of the company,” she wrote, adding that her view is evidently shared by at least some within Microsoft as well. The Gillmor Gang convened on Kentucky Derby Day and concluded that “Google is a big winner, Microsoft is not dead, and lives to bid another day.” Larry Dignan speculates that, besides Google, Facebook and MySpace (weren’t they the ones eclipsed by Facebook?) are also winners as, guess what, they’ve got the only other beachfront property left. Ovum’s David Mitchell counters that the deal would have helped Microsoft in Asia where it could have leveraged Yahoo’s penetration in China. My colleague Andrew Brust, who’s finally returned to blogging, offers a more idealistic view of why the deal should happen: it not only fills the online ad gap, but provides a great platform for monetizing its AQuantive ad server acquisition. “AQuantive’s ad serving platform and Razor Fish’s agency savvy could combine really well with the reach that Yahoo’s network of sites would provide. Add Silverlight to the equation, with its rich media capabilities, and things get really exciting…”
Our take? Yahoo will try sidling up to Google, but (1) if YaGoogle (or GoogleHoo?) can’t get past antitrust (remember, this is about ads) and (2) Microsoft still hasn’t spent its $44 billion, Ballmer will return with an offer that will sound a lot like $33, or even less.