Microsoft, Yahoo and you

Michael Hedges February 4, 2008

Microsoft’s unsolicited €30.2 billion ($44.6 billion) offer for search engine Yahoo grants bragging rights to CEO Steve Ballmer for ‘big deal’ of the week, or month, or year. If nothing else, it’s audacious. And it speaks volumes of the desperation to rejoin the club it invented.

Smart CEOs at big companies know fully well that buying market share is easier than building it, so long as you have the money. Smart CEO’s also know the price of innovation. Ballmer is admitting Microsoft’s soft spot.

Microsoft is not alone coming late to the Web. Media groups, largely, see the Web as a threat, something to be fought. Get over it.  

The Web is now synonymous with new media and new advertising. Old media and old advertising – literally and figuratively anything not invented this century – are packing their bags for the retirement homes. Gramps still tells stories about the way it was but, politeness aside, nobody cares. Buggy whips are a nice little hobby.

Microsoft, lo those many years ago, brought innovation to IBM, selling Big Blue an operating system for desk-sized – as opposed to room-sized – computers. That led to applications, giving people tools for work, home and play. Say goodbye to pen and paper. Microsoft has become IBM.

What Microsoft didn’t itself invent, it bought. Any successful Silicon Valley business plan’s exit strategy was a sell out to Microsoft. Google has that job now, for Web applications. WPP has it for the ad business. They’ll buy any better buggy whip.

Google now has the mantle of innovation. It’s far from alone on that front, as Microsoft was far from alone back in the 1980’s. But Google, unlike Microsoft, arose as a media company. Like Microsoft reinvented the computer business, Google has reinvented media, something that horrifies WPP’s Martin Sorrell. Say goodbye to everything that came before. If you’re not on the Web – and searchable on Google – you don’t exist. If you don’t have a deal with Google you’re dead.

So it is Microsoft, not unlike traditional media, with the existential problem. Still cash-rich, not unlike traditional media, it is hard-wired to the notion of buying a fix. Murdoch buys MySpace. CBS buys last.fm. Microsoft buys Yahoo. (There are wonderful rumors about Murdoch making a bid for Yahoo. Don’t get excited. James will tell the ol’ man to calm down, go to his room and read a newspaper.)

Though far smaller than Google in scale and recently undergoing its own reinvention, Yahoo isn’t a dud. There’s a certain advantage to being number two and trying harder. Yahoo actually leads in Web applications, something Microsoft wants. But, to date, neither Yahoo nor others in the new media arena have been able to match Google’s endless barrage of customer-cool advances and the endless waves of advertising money.

Obviously, there’s no deal until there’s a deal. Both Yahoo and Microsoft have lined up big investment banks to advise and analyze. Bloomberg reported that the fee split for the investment banks would top €100 million. There will be a deal.

Once the shareholders agree, the clock starts ticking… and very slowly. EU Competition Commissioner Neelie Kroes already said she’d like to take a look at this one. She has a nice working relationship with Microsoft CEO Ballmer so that might not take more than a year. Assuming negotiated terms not all that unfavorable to Microsoft the next step is integrating the companies. Think about how easily AOL and TimeWarner fit together. Add three years, if not more.

Three years, four years, five years is an eternity in the new media world. During that time Yahooligans will, largely, mind their time and polish their CVs. Google will race further ahead, its edge based on ‘the power of free’. It’s a concept that continues to horrify the media world.