Microsoft plus Yahoo? The sum is less than the parts

I don’t know whether Microsoft will win its unsolicited takeover offer for Yahoo (AP story here, on Yahoo) — the legal and financial road for such hostile bids is always unpredictable. But I do know this: it is a path to failure for both companies.

The business press is going to go into paroxysms over this move: it combines the frisson of a big tech-industry acquisition story with the raw testosterone of a hostile-takeover battle saga. In newsrooms everywhere this morning, you can practically hear the salivation. Don’t get distracted. These big takeovers — AOL/Time Warner was the biggest — are always about failure in the present and fear of the future. And they nearly always end badly.

To understand what the takeover would mean for Yahoo, just look at the fate of the previous company to end up in this circumstance. When Netscape, then a dominant portal site and purveyor of a declining but still widely used Web browser, got bought by AOL a decade ago, we heard all the usual pieties about the strength of the brand and the value of its franchise. But AOL’s acquisition of Netscape meant its doom: the remaining talent headed for the exits, and its assets were quickly cannibalized. AOL itself entered another disastrous merger a couple of years later, and today it is a shadow of its former importance — while Netscape isn’t even a phantom.

Similarly, if Microsoft wins Yahoo, you will see most of Yahoo’s smart people depart, and its customers gradually parceled out to attempt to bolster Microsoft’s ever-faltering efforts to build an online business. Much of the talk in the business press surrounding this deal will be about Yahoo’s ad business, and it’s true that Microsoft will find it useful, but it’s hard to see what new power a combined Microsoft and Yahoo business will have to challenge Google that the two companies didn’t have as separate entities.

For Microsoft, this move is a final admission of the utter failure of the company’s effort to build an online business for itself over the past decade — in services, advertising or content. Winning Yahoo would surely bolster Microsoft in this area in the short term. But in the long term, these efforts at lashing together two failures in hopes of sparking a success have never prospered. For Google, the target of Redmond’s chess move, there is really no danger here. Google today needs to worry about the drag on its stock from the broader market troubles, and the drain on its brainpower by the lure of new startups. Microhoo is hardly a threat.

UPDATE: Kevin Kelleher has an amusing take over at GigaOm:

[Ballmer] finally called Yahoo on the Oz-like illusion it’s been fostering for a couple of years: “You had a year. You lost. All your base belong to us.”…

Yahoo has been admirably laissez-faire with Flickr and Will they be preserved or folded into to services we’ve all eschewed? How will Yahoo mail accounts be reconciled with Hotmail accounts? Will those of us who use Yahoo Finance and all its features adapt to MSN Finance? What is MSN Finance?

A 62 percent premium, hmmm –- we Yahoo users have a new choice: Learn to love life under Ballmer, or migrate to Google.

Not hard to guess where that choice will fall…
[tags]microsoft, yahoo, takeovers[/tags]

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  1. very impress about the analysis, “the remaining talent headed for the exits, and its assets were quickly cannibalized” there are some other remarkable things, i like it very much.

  2. Aw, geez, that tight-lipped ‘yep’ was meant for the original article, the original post, that set of sentences that Scott Rosenberg created up above.

    So much for ‘laconic’.

    (Oh! I just got a great idea for a blogging name!)

    “-” us

  3. I’m not quite so pessimistic about this as all my friends. Microsoft does do some things right, and Google does some things wrong. I don’t use Yahoo for search, though I have, conscientiously, tried for months at a time. But I do use flickr and yahoo groups. While MS can screw them up now, one has to wonder whether they will be so stupid and short sighted as to really do so.

  4. Dev Anumolu

    I don’t see any synergies from this deal. A merger of two failures is not going to be a success. The cultures are so different that Yahoo will lose its best brains.

  5. Wonderful post – Good to see some fresh ideas on something that everyone is writing about.

    The success rates on acquisitions in general are extremely low (not just in tech) and I think that you are probably right on with the likely negative consequences.

    It is such a shame since the power of the combined business could be tremendous – Yahoo’s web plus Microsoft Desktop. Endless integration opportunities.

    Sadly, this potential is not likely to see the light of day…. but wouldn’t it be nice?

  6. I’m not in the tech business at all, so your post totally confirms my suspicions. I thought there was some special technology that perhaps I was missing or didn’t understand.

    Microsoft management seems Enron-esque. How can they possibly believe they can co-opt Yahoo users to be Micro-soft centric?

    Am I missing something — does Microsoft have some kind of secret weapon to prevent it from totally losing market share in its major market?


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