How a Yahoo Merger Could Screw Up Microsoft

[Editor's Note: Microsoft's proposed Yahoo acquisition is so big that it could be a month of topics. The analysis of this unprecedented, unsolicited merger bid will be broken into shorter posts rather than the more typical single encompassing one.]

A Yahoo merger would be a huge integration project, even for Microsoft. The task may even be too big. The numbered points are some areas where Microsoft faces potential hardship.

The numbering is for ease of reading. The items are not in any order of importance.

1. Product overlap. Microsoft and Yahoo services like mail and messaging, or the MSN and Yahoo portals, overlap among the same customers. There is no real gain for Microsoft but potential losses as the company consolidates brands and services that reach the same audiences, often the same customers.

2. Branding conflict. Microsoft could conceivably keep—and probably should—brands like Flickr and Launch (aka Yahoo Music). But many other brands, particularly those with customer overlap, are tougher calls. For example, Microsoft has Gadgets and Yahoo has Widgets. Which brand, and even technology, should Microsoft keep? Yahoo Widgets are more popular, widely available and better supported by more developers. But Microsoft's temptation will be to preserve its own brand.

3. Data center integration. Yahoo's stock of data centers is one of the most valuable assets of an acquisition. But Microsoft is going to need to marry the infrastructures, which is complicated by operating systems. According to NetCraft, most Yahoo sites run FreeBSD. Wouldn't it be a hoot if Microsoft has to use its own Unix-Windows interoperability tools? One Yahoo exception is the music site, which runs Windows Server 2003; there, Yahoo uses Windows Media technologies—hence, the reason for the Microsoft software. Right now, Yahoo data centers are notoriously efficient. Would they be the same running Windows Server?

4. Advertising, analytics and search integration. Microsoft's temptation will be to kill the golden goose. Yahoo search relevancy, analytics and ad platforms are efficient, perhaps more so than anything Microsoft has got. I say perhaps because of what Microsoft gained from acquiring aQuanitve. Microsoft has to integrate different platforms, search and analytics technologies, sales and marketing personnel, and channels. It's going to be messy.

See eWEEK Slideshow: "5 Reasons Why Yahoo Should/Shouldn't Take Microsoft Up on Its Offer"

5. Cultural conflict. Microsoft and Yahoo aren't exactly peas in a pod. Yahoo's corporate culture is very Silicon Valley, yet fiercely independent. Yahoo's board and many employees (perhaps with the exception of those to be fired) probably won't look kindly on the acquisition. They're called hostile takeovers for a reason. An unwelcome acquisition will only further widen cultural and operational differences between the companies. I suppose Microsoft could lay off 12,,000 people and just walk away with the technology, but only if CEO Steve Ballmer is insane.

6. Small business services. As Forrester analysts Rob Koplowitz and Kyle McNabb explained in a blog post earlier today: "The delivery of business applications through the cloud might pose a bigger ultimate threat to Microsoft than losing the search and advertising wars." Yahoo small business assets—everything from search to storefronts to Web hosting—are among the crown jewels of the acquisition. But Microsoft and Yahoo existing small business services, when put together, are a messy lot. They're complementary in the wrong ways, compete in too many places and use different technologies. Yahoo services are actually quite a bit more open than Microsoft's.

7. Security and privacy. Yahoo has long needed to clean up its small business hosting and e-mail services. There is some real riffraff and more than a couple spammers out there using Yahoo services to do nastiness. I can say from experience using Yahoo Small Business services that the company needs to better assist its good customers and oversee who's doing what with its services. Microsoft's security and privacy policies necessitate some serious cleaning up, and that's going to be messy and take time.

In the next post, I more thoroughly explain why the integration is so risky for Microsoft.

Related:

• Microsoft's Bid for Yahoo Faces Challenges, eWEEK, Feb. 1, 2008
• Microsoft Moves to Buy Yahoo, eWEEK, Feb. 1, 2008
• There's No Must in Microsoft's Yahoo Bid, Microsoft Watch, Feb. 1, 2008
• Microsoft's Yahoo Bid Could Benefit Enterprise Users, eWEEK, Feb. 1, 2008
• Why Did Microsoft Yell Yahoo, Today?, Microsoft Watch, Feb. 1, 2008
• Microsoft-Yahoo Is a Developer Services Boost, eWEEK, Feb. 1, 2008
• Yahoo Is Microsoft's Last Web Stand, eWEEK, Feb. 1, 2008
• Ballmer's 'Moody' Yahoo Pitch, eWEEK, Feb. 1, 2008
• Microsoft Deal to Cancel Yahoo Pink Slips?, eWEEK, Feb. 1, 2008
• Microsoft! Buys! Yahoo!, Eric Lundquist Upfront, Feb. 1, 2008
• Break Down the Garden Walls, Masked Intentions, Feb. 1, 2008
• Blodget Bludgeons Windows Live to Death, Microsoft Watch, Oct. 8, 2007
• Will Microsoft Yell Yahoo?, Microsoft Watch, May 4, 2007