Pakorakorner

Microsoft’s move is not the least bit surprising. The online advertising market is here to grow and Google has been enjoying a virtual free ride. While cashing in on the online ad market, Google has been attempting to eat into Microsoft’s desktop monopoly. Meanwhile, Microsoft’s search strategy hasn’t made sufficient progress to threaten Google in any way. In these circumstances, the only option for Microsoft to stem the Google tide, was to acquire Yahoo!

The Short Story

On the one hand, it is sad to see the iconic Yahoo!, the SGI of the Internet era, being swallowed up. On the other it is hard to argue the fact that Yahoo! hasn’t really “kept up” either through internal development or through acquisitions. It was clearly beaten in search despite the much-promised Panama project. It is has no social networking presence despite having a terrific asset in its ubiquitous Yahoogroups. Its foray into photos was abandoned. The new Yahoo Mail was in response to Gmail but took forever. The Brickhouse effort that was setup recently and cut back in the recent round of layoffs was a desperate “me-to” effort to tap into the valley’s obsession with Web 2.0. In short, Yahoo! established itself as a portal in the 90s but never really evolved beyond it. Portals where hot in the 90s, but these days apart from mainstream search (which is dominated by Google) niche plays like vertical search, communities and social networks are the in thing. Unfortunately, Yahoo! overlooked these opportunities despite its valuable installed based of users and Internet properties. Meanwhile, the CEO, Terry Semel bailed out, Jerry Yang who took over didn’t cut back soon enough, Wall Street lost its enthusiasm, the stock dipped and Microsoft stepped in. In hindsight, Yahoo! could have delayed this move, had it quickly hired a replacement CEO or made some interesting acquisitions (like say LinkedIn or at one-point Gooogle!) or if it had cut back drastically and quickly, thereby buying itself some time.

The Alternatives

The alternatives such as News Corp., Google, AOL are ideally very good for the partners but not necessarily for Yahoo! (in the long run) apart from staving off the Microsoft bid. Besides, each of these options comes with a certain degree of baggage (anti-trust for Google, new leadership at Time Warner etc.). My guess is that Microsoft will sweeten the offer a little just to quieten down those opposed to the deal and step up the pressure on Yahoo’s Board and Management, and to win over the large shareholders one final time.

In short, it looks like its game over for an independent Yahoo!

Merger Will Be Interesting

The acquisition does pose a lot of challenges for Microsoft. Integrating a large acquisition (this being Microsoft’s biggest acquisition to date) will have its share of challenges. There will certainly be cultural issues to address. There will be plenty of clean up to be done and product overlaps to deal with. It will be interesting to see how Microsoft overcomes these challenges and posts a threat to industry leader, Google, especially at a time when Bill Gates is phasing out. The merger will most likely be a big part of Steve Ballmer’s legacy.

Silicon Valley Dynamic

With the acquisition, Yahoo! is bound to have a size-able exodus of talent. Die-hard Yahoos are unlikely to join Google (what a sell out if they did!). This in general is good for Silicon Valley’s startup world in my opinion. This acquisition gives Microsoft a solid presence in the Silicon Valley. This could have interesting implications for the valley in general. Maybe the inherent dislike and distrust for Microsoft in the region will diminish?