So Microsoft is trying to buy Yahoo. I’ll leave the detailed analysis to people better qualified than myself but I thought that I could add a little perspective simply by looking back and remembering something that happened less than ten years ago.
As you can no doubt guess from the title, the event that springs to my mind is the merger of HP and Compaq. The main problem with HPaq at the time was that merging HP’s loss-making PC business with Compaq’s loss-making PC business just wasn’t a good idea. Fiorina pushed the whole MBA line of thinking: being the biggest player will allow greater economies of scale, lower prices and more profit. Unfortunately, two big losses merged tends to make a big loss also, albeit perhaps smaller than the old combined total ((HP obviously have other areas that do make money, most notably their ink cartridge printer division.)).
The saddest things from my perspective are that HP had a great engineering tradition and Compaq had some great technologies (Alpha for one), all of which were rapidly divested. HP traded a future for short term benefits. And, as can be seen on the above stock chart, the 2001 merger didn’t really do much for the market price.
Compare this to Microsoft and Yahoo. Yahoo have been in the doldrums for a while now. Back in ’94 they were the Google of the day, but they fairly quickly lost their way. Their indexing method (actual people as I recall) just didn’t scale as quickly as the Internet as a whole and they were quickly outpaced by up-and-coming new, automated systems like Altavista, Hotbot and Google. Yahoo retaliated by buying wholesale into the portal phase of the dot com boom and just outright buying interesting looking technologies, everything from music to photography sites.
And that’s pretty much where they are now. Of course they’ve changed management team a few times, but the share price has been fairly flat since 2001 (not sure what that little peak in 2004 was).
Microsoft are the company that brought you Windows and Office, and don’t really need much more of an introduction. Pretty much everything else they do loses money ((I like this Cringely article that explains why they like to do this.)). Or at least, any profits they do make in other divisions is line-noise compared with Windows and Office.
So if you combine Microsoft’s barely known Windows Live service ((If anyone uses this it’s because it’s the default in Windows. It’s undoubtedly getting better, but then so is the Zune.)) and Yahoo’s fairly popular if not hugely profitable web sites, what do you get?
Well, like the HP/Compaq merger, you get a lot of duplication. Microsoft and Yahoo both have search, instant messenger, photo publishing and, most famously, webmail. By some accounts, if they merge they will have over 80% of the webmail market. But where do you go from there? Do you migrate all Yahoo’s Mail users over to Hotmail?
And, most importantly, do a large number of regular visitors automatically mean big bucks? Is Microsoft buying a future — by saving time developing code and attracting users — or simply buying the past?
In the end, I just can’t see what Microsoft think they’re buying. Yahoo seems not to have the technology required to take on Google and their combined page impressions have no obvious quick routes to profits. I hope it works out — a world where Google is as dominant as Microsoft is now is not much of an improvement — but I have doubts.
