There's No Must in Microsoft's Yahoo Bid
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News Commentary. As usual, I disagree with my eWEEK colleague Steven J. Vaughan-Nichols. Yahoo isn't Microsoft's "last Web stand." |
[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.]
SJVN claims that, "if Microsoft wants a decent shot at still being the number one company in the world by the decade's end, it must buy Yahoo." There are just so many things wrong with that statement.
For starters, what is SJVN's measure of "number one company in the world?" Based on revenue, Wal-Mart and Exxon are the world's largest companies. According to Wikipedia, Microsoft ranks No. 63. Microsoft doesn't even make Fortune's top-100 list, which includes state-owned agencies omitted by Wikipedia.
Secondly, SJVN makes some rather outrageous and unsupported suppositions like: "Today, Google's Open Apps, and ODF [OpenDocument Format], which it supports, is making significant inroads into the office," Really? A recent NPD survey found that 94 percent of consumers have never tried a Web-based productivity suite—three quarters haven't heard of one. As for businesses, if Google apps or ODF are doing so well, why are so many enterprises buying Office 2007?
"Can two companies on a downward spiral combine to beat Google?," SJVN asks. By what measure is Microsoft in decline? The company just posted record revenues of $16.37 billion for its fiscal second quarter, raising yearly guidance, again. Year over year, Office and Windows accounted for roughly 80 percent dollar volume growth for the U.S. PC software retail market, in 2007, according to NPD. It's an outrageous and unsupported claim that Microsoft is in decline.
I'm sorry, but my colleague is spreading his own FUD (fear, uncertainty and doubt), which isn't surprising giving his unabashed Linux-loving ways. No disrespect intended, but somebody's wishful thinking needs a reality check.
Yahoo is a good Microsoft acquisition, but it's not great. Microsoft gets several big benefits from Yahoo, none of which are a must in its competition with Google (I'll discuss the benefits in a subsequent post).
By the way, Microsoft no longer aggressively competes with Google. That's a misnomer and some handily placed FUD by Microsoft. Google knows two tricks: Online search and online advertising, based on other people's content. Google produces nothing.
The bigger advertising opportunity is just outside Google's reach, at least for now. Also, Microsoft recognizes that Google has barely tapped the real advertising opportunities, whether they be ad dollars coming from television to the Web or those cutting across multiple channels. At no time during Microsoft's conference call this morning did executives bring up Google. But they talked lots about the advertising opportunities a combined Microsoft-Yahoo could bring.
Yahoo isn't a must, it's a risk. Right now, Microsoft is hugely profitable. During this morning's conference call, Microsoft CFO Chris Liddell said that the transaction "will, from an EPS [earnings per share] point of view, be the breakeven or better of Microsoft in the second full fiscal year post closing." That's a lot of earnings risk, plus there is the logistical hassle of integrating the two companies.
Microsoft is betting the company on the Yahoo acquisition, assuming there is a deal. Microsoft believes that it can get to market faster through acquisition than by building its own infrastructure. Google isn't well positioned for what comes next. The advertising market is shifting too fast. Yahoo has great assets but lousy execution. Microsoft knows how to execute—from a purely business perspective, anyway—but doesn't have enough of the advertising assets.
There is a race to see who gets to market first with tools that will deliver the next-generation of advertising services. Microsoft can get there without Yahoo, but a whole lot faster if a merger goes well—and there's no certainty of that.
As I've repeatedly said, Microsoft is becoming three distinct entities:
- Platforms (including Office, server software and Windows)
- Advertising and Search (including aQuantive and Live)
- Consumer Electronics (including embedded, Xbox and Zune)
Yahoo would fit in that second organizational silo, but touch others. But that's topic for a subsequent post.
Related:
- Why Did Microsoft Yell Yahoo, Today?, Microsoft Watch, Feb. 1, 2008
- Microsoft's Yahoo Bid Could Benefit Enterprise Users, Microsoft Watch, 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
Comments (17)
I have to say it is almost impossible to read what SJVN says with a straight face. Most of his monologues do seem to be based on fiction rather than fact and an incredible anti Microsoft bias. There is absolutely no evidence to backup what he is saying. I think it is a big risk for Microsoft and certainly a big gamble.
My big concern would be the overlaps and price Microsoft has to pay. I think it also shows the rebranding of live services has not worked as a branding exercise. Though many of the live services are at least as a good as the google equivalents they are ignored e.g. http://maps.live.com
Posted by basellife | February 1, 2008 4:19 PM
Quoting Joe Willcox;
"SJVN claims that "if Microsoft wants a decent shot at still being the number one company in the world by the decade's end, it must buy Yahoo." There are just so many things wrong with that statement."
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Joe, its not that MS wants to be the number 1 company on the internet, its that MS wants to control the internet as it has in fact done as a monopoly on the desktop operating system market. It wants another monopoly, this time the internet itself. Only Google, and perhaps the EU will stand in its way. So really, SJVN is right.
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Quoting Joe;
"Based on revenue, Wal-Mart and Exxon are the world's largest companies. According to Wikipedia, Microsoft ranks No. 63. Microsoft doesn't even make Fortune's top-100 list, which includes state-owned agencies omitted by Wikipedia."
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Is revenue the proper figure to base this on Joe? I say its not. Instead of revenue, its should be based on total profit, or ratio of profit to cost. On these two numbers, MS will come out at the top, or very close to the top.
Posted by chips | February 1, 2008 4:20 PM
The Linux shill (SJVN) vs the Microsoft shill (Joe Wilcox).
Very entertaining, and nauseating, at the same time.
Both gentlemen see things in a very narrow, partisan prism.
Both are actually articulate, and back up many of their claims with other blogs, stories, facts, etc.
But both are completely clouded by their own partisan bias', and everything they say should be taken with a grain of salt.
As for me, views usually fall somewhere in between the extremist views of SJVN and Joe Wilcox.
But the thing is, SJVN is very up front about his Linux partisanship, and presents his opinions in a take it or leave it fashion.
Joe Wilcox, by contrast, tries to present himself has fair and unbiased, when nothing could be further from the truth. In fact, every blog from Joe Wilcox I've ever read has been pretty much the same mantra - "Everything from Microsoft is perfect and wonderful and superior, and everything else is horrible and evil and worthless".
At the very least with SJVN, being the extreme Linux partisan he is, he is willing to admit Linux shortcomings.
Plus, Joe Wilcox is always taking SJVN to task, while SJVN pretty much ignores Joe Wilcox.
So with this latest Joe Wilcox response to an SJVN partisan blog, Joe ends up looking like a bigger idiot than SJVN, even though he's only trying to prove his own superiority.
And, for what it's worth, here's my take on today's MS/Yahoo news:
This attempted acquisition, while it comes as no surprise since MS has making intimations about a Yahoo acquisition for a long time now, is very fascinating, on technical, strategic, and market levels.
Technical:
Yahoo runs on, AFAIK, a combination of BSD, Red Hat Linux (and Yahoo has support contracts from RH), and Oracle "Unbreakable" Linux (the RH clone, and Yahoo has support contracts with Oracle). Yahoo's back end data crunching, search, and distributed code is mostly C++ compiled and highly optimized to run on their *nix cluster server farms. Their front end apps are mostly PHP. It will interesting to see if MS keeps that infrastructure stack, or tries to migrate it all over to Windows/.Net stack (an endeavor that would be massively expensive and time consuming), or totally replaces Yahoo search with MSN search, or whatever.
Regardless, at least in the short term, MS becomes a huge user of BSD, Linux, and PHP. Ironic, heh?
Strategic:
Yahoo is currently a paying customer of both Red Hat and Oracle (the aforementioned support contracts). MS, by acquiring Yahoo, immediately becomes a paying customer of both Red Hat and Oracle, two of their arch rivals! Funny!
Will MS continue this? Will they cease their support contracts ASAP? Does having a paying Linux support contract with both Red Hat and Oracle weaken their patent claims against Linux?
Will MS swallow the big expense of doing a big conversion of Yahoo *nix/C++/PHP infrastructure over to Windows/.Net?
And assuming they try that big conversion, do they want to risk losing many current Yahoo users due to technical glitches? MS is used to getting away with putting out stuff that doesn't work well (Vista), and not lose customers because OS migration is very non-trivial. But Web search/online apps migration is trivial. I have a Yahoo email account, as well as a Gmail account. It would be completely trivial for me to stop using Yahoo, and migrate (send) my Yahoo emails and notes over to Google. Thus, in a big migration (or integration), MS can't afford even the slightest misstep. MS is not used to that kind of performance scrutiny, or that level of risk.
Posted by super_j | February 1, 2008 5:16 PM
You're wrong, super_j. It is pretty sure that Wilcox and SJVN are friends. Even further, they work together at eWEEK- surely they meet up and talk about that and many other things. I suspect that in his heart of hearts, Joe's a pragmatic: closer to the free world than to Ms, but of course, he's writing a Ms-themed column and has to show some love towards Ms (if you read Joe's declaration after his first year, you'll understand).
But then, it is obvious that every once in a while Joe forgets to keep an equilibrium in his articles. And he should really remember that.
Lastly, let's be ever so forgiving of him until he reaches maturity in this profession.
Posted by Marco | February 1, 2008 5:42 PM
Yahoo is vapor that will dissipate in Microsoft's hands leaving investors wondered where all that cash went. AOL2.
Posted by george | February 1, 2008 5:48 PM
@super_j and Marco:
You both make some excellent points. I also find that Joe and Steven are both fairly staunch in their views, but also seem to tolerate opposing views very well. That's pretty remarkable. And so even though I don't fully agree with either of them, I do have to admire them and listen carefully to what each is saying.
@super_j:
I find your Technical comment spot-on. When Microsoft took over Hotmail, they converted a reliable web mail service to an unreliable web mail service. At the time, there wasn't much competition, but I do know of many who defected from the Microsoft-munged Windows-based Hotmail to Yahoo mail. Now they're all on Gmail. That's not a scientific market survey by any means, but then again it is first-hand experience for me and not a hearsay market survey that was influenced by one biased benefactor or other.
And so it will be interesting to see if Microsoft converts Yahoo from its current state into something that is far less relevant and desirable.
People can claim what they want, but in the year 2007, my Fedora Core 5 desktop ran 24x7x365 and I rebooted it ONCE. And I didn't really even need to reboot it, but I had a bug in an application server suite under development, and it was quicker to reboot than to manually shut down the various offending pieces and wait for communications timeouts to expire. And this was a system that was heavily used for office email, document creation and viewing, C++ software development, web browsing. And web/HTTP serving, Wiki serving, and a Subversion server tossed in. And it never slowed down nor leaked memory (well, I did put in a cron job to kill gam_server once a day, and I had to stop and restart Thunderbird about once a month or so, but that was it. Period). NO disk slowdowns, NO disk defragmentation needed, NO system slowdowns.
Microsoft can get the facts all they want, but they cannot touch that kind of reliability. And this FC5 system was an "ancient" and unsupported distro, even. I am not arguing desktop suitability, driver support, application availability, and the like. No, I am only a first-person witness to 100.0000000% battle-hardened can't-go-down never-say-die reliability, the kind of reliability that reliable server farms are built on.
The Highly Reliable Times, indeed.
Posted by Philosopher | February 1, 2008 8:09 PM
Philosopher: Do you know why Ms is incapable of creating something original? It's because the Programmer profession could be very fascinating, if development is THAT exciting to you-however, it is very boring if it's not so. Plus, working in Ms kills creativity.
Ah! and about SJVN, he has earned a good and respectable name and surely he is a very happy man since defended his principles. But that article was simply Machiavellian (brilliant, but Machiavellian.)
Posted by Marco | February 1, 2008 8:54 PM
Insightful post Joe. Thank you.
Allow me to make a prediction...
IF Microsoft's acquisition of yahoo doesn't go through for whatever reason... the folks that are poo-poo'ing the deal today... will be saying things like...
"By losing Yahoo, Microsoft missed its last chance to beat google"
In other words, the Microsoft haters are simply 2-dimensional characters, berect of the ability to be objective, and only say the same TIRED answer... regardless of the question.
Posted by uhura | February 1, 2008 10:13 PM
berect = bereft
Posted by uhura | February 1, 2008 10:14 PM
quoting uhura;
"IF Microsoft's acquisition of yahoo doesn't go through for whatever reason...
the folks that are poo-poo'ing the deal today... will be saying things like...
"By losing Yahoo, Microsoft missed its last chance to beat google"
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So let me be first to say that before the deal goes though or not. If MS loses the Yahoo deal, they have almost no chance to take over the internet, as the monopoly that wants to crush the world and squeeze out every last dollar from users it can. There, I said it. And before the deal falls through.
Somehow, I don't think even with Yahoo, that MS is going gain that much. There software and their aims to control and spy on everything users do online will backfire on them. DRM and WGA is not helping MS either.
Posted by chips | February 1, 2008 10:51 PM
lmao @ chips the moron. flip flop much?
your first paragraph:
"if msft doesnt get yahoo, msft loses"
your second paragraph:
"if msft gets yahoo, msft loses"
take your hate elsewhere... fool!
Posted by uhura | February 2, 2008 2:17 AM
The point is MS loses either way. So easy to touch a nerve with these Neolite sock puppet M$ $hills.
Posted by chips | February 2, 2008 2:07 PM
Games: Linux Has Better Windows Compatibility Than Vista
http://games.slashdot.org/games/08/02/02/0236200.shtml
Quote; "Several readers have written to tell us about one users rant in which he tells the story of being so frustrated with gaming on Windows Vista that he tried comparing gaming on Vista to that on Linux using Wine, with surprising results."
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Clearly the train wreck that is Vi$ta will kill the pc gaming experience.
Posted by chips | February 2, 2008 4:41 PM
oh wow, a slashdot reference. i forgot all about that site, its grown so irrelevant.
Posted by penandpaper | February 2, 2008 8:11 PM
The reason games and DX10 work so poorly, if at all in Vista is that Microsoft has broken them as they want people to buy the Xbox instead of using a PC to play games. By killing off games they think they accomplish this. Once XP is gone, maybe they will.
Posted by sam | February 2, 2008 11:46 PM
Does the games industry wants the PC to fall?
http://www.bit-tech.net/columns/2008/02/02/the_sky_is_falling/1
Quotes; "PC Games account for only 14 percent of total game sales. that means 86 percent of games sales are consoles! PC gaming does have its share of problems. The continually moving technology introduces tremendous market confusion and ever-increasing requirements. Piracy is rampant, albeit probably not to the advertised detriment of the industry. And a divided user base between different operating systems and hardware specs means some gamers demand bleeding edge while others couldn't cut through cottage cheese."
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Vi$ta with DX10 (the continually moving technology ) has many compatibility problems with apps, and especially with games. Gamers have been disappointed with Vi$ta, and have mostly gone back to XP. Checking out almost any gaming forum will prove this is true.
What is happening is that gaming is dieing of the PC for many reasons, but Vi$ta may be the final nail. But there is a quiet revolution at work, one that could become the next gaming stage on the pc. Open Source gaming on Linux on the PC, its gaining ground. A visit to this site shows the way happypenguin.org
Posted by chips | February 3, 2008 12:43 AM
Well I hate to say I told you so but I told you so, point blank. Vista is being replaced totally by the Xbox360 and Windows Vista does not run PC games as well as an Xbox can along with console games.
I really see nothing wrong with that, Microsoft has proven itself in the games industry and proven that people are really pretty tired of the whole PC market.
Now you can do things much better on consoles than PC, and the Xbox360 is the wave of the future. Gears of War and Halo 3 are Microsoft owned properties, and they are video game phenomenons just not even really worthy on the PC.
The Xbox and even the Zune, are very cool devices and have created a new brand of awareness out there. Sorry but things were getting pretty idiotic when Sony had their own monopoly in the games industry, now that monopoly is broken and as a result now console gaming is more popular than PC gaming for many genres.
Now I admit to being partial to Microsoft and Yahoo, but Google is a good company. They innovated many things in advertising just like how MS innovated with Xbox Live.
But now Google is trying to take over the web by not giving the competition a fair shake, IMO, it is best they stop blowing smoke and let a merger happen.....Microsoft with Yahoo will not be able to outdo Google, but it will show the world where everything's headed: Integrated digital distribution and they will have patents on it!
Being able to buy anything right out of your living room has been where both Microsoft and Sony have been heading for a while, with Yahoo's help they will do it everywhere: Especially in Asia and it will become the new trend. I guarantee this. Oh and long live the Xbox as well as Halo.
Posted by Hate to say I told you so | February 5, 2008 5:16 PM