There Will Be No Winners If Microsoft Conquers Yahoo!
There Will Be No Winners If Microsoft Conquers Yahoo!
There Will Be No Winners If Microsoft Conquers Yahoo!

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    The Yahoo! board is reportedly meeting this afternoon to figure out what to do with Microsoft’s unsolicited $44.6 billion bid. It’s like watching a slow-motion train wreck. You know the damage is going to be horrific, but you can’t turn away. Make no mistake. The collateral casualties will cover the landscape from Sunnyvale to Redmond.

    A Microsoft takeover of Yahoo! would be a classic Pyrrhic victory. Even the campaign is shaping up as a lose-lose-lose scenario. Everyone involved will come out of this brawl diminished. The roster will include Microsoft, Yahoo! and Google, to say nothing of the customers, advertisers and employees.

    From the outset, the offer didn’t make much sense. Yahoo! became the pioneer in figuring out where things were on the nascent Web by indexing, not by searching. You had to drill down through menu after menu to find something. At the time, it was very useful and not all that taxing, although as the Web developed, it got to be a longer and longer task. Then search as we know it happened through Google, and the landscape shifted. Yahoo! lost its focus and identity as an Internet company or as a tech company and started making itself into a “media” company. While it has a very popular portal, great email, the search and advertising functions fell behind. Outsourcing search to Google now won’t make that much difference. Google has been supplying search results to Yahoo! for years.

    Yahoo! got into bed with AT&T and Verizon by selling branded DSL services, which helped the bottom line but also gave companies that you don’t want to have leverage over you leverage over them. AT&T in particular has been stringing Yahoo! along for months on the continuation of a broadband deal which not hamstrung the company financially but totally took Yahoo! out of important Washington public policy debates.

    Microsoft still has control over the desktop but never mastered the Internet after all these years. Yahoo! will give it the online presence all those butterfly commercials never could. But will that be enough to catch up to Google? Probably not. Yahoo! has tried for years also and couldn’t do it. Neither could Microsoft. What makes Microsoft think that combining two companies that couldn’t surpass Google will do better than each could individually?

    Microsoft is already starting to feel the heat from the deal. All it needs is for policymakers and journalists to be reminded of the company’s history in driving out competitors. Lisa Napoli, the astute reporter for Marketplace, just did a story on how AOL is going to pull the plug on what’s left of the first big dot-com company. Of course, she mentions that Netscape, the first Web browser, was driven out by Microsoft. AOL Executive Ted Leonsis calls that whole sorry time “ancient history.” Ancient it may be, but its history with a lesson that is relevant today.

    It’s almost unthinkable that Microsoft would require Yahoo! to be accessible only by IE, or to disable certain features for those of us who use Firefox or another browser. But the unthinkable could happen. Microsoft once defended the concept of the open, non-discriminatory Internet. Then it took itself out of the Net Neutrality fight once it started doing deals with the phone and cable companies. If it tries to mess even more with the open character of the Internet, on the side of the telephone and cable companies, it will be back in and provide yet another reason for regulators and legislators to start looking over the company again.

    What would be gained by combining Yahoo!’s mail with Hotmail? Not a lot, except that the charges of Microsoft hegemony would rise up again louder than before and Microsoft will be again forced to defend itself. Some tough merger conditions might mitigate the attacks, but those are the kind of conditions that, if implemented, would mean the takeover would make less sense than it does now.

    On the other hand, $44.6 billion would buy a lot of chaos. The combination of the two companies would produce mass layoffs and reorganizations sufficient to disrupt or cripple both companies for years to come. Casual Silicon Valley vs. button-down Redmond? The Net vs. the Enterprise? You have two different corporate cultures in different locations with different goals. Good luck with that. The mergers of two departments in one company can cause enough heartache and headache. Putting these two together will make the Department of Homeland Security, a legendary mess here in Washington, look like a coherent organization.

    And what about Google? If Google is smart, corporate executives would just sit back and watch the wreck happen. They don’t help themselves by being hysterical. They can chip in with a comment now and again just to goose the process along and register their expected objections. At the end of the day, the deal, if it comes together financially, will get the necessary governmental approvals, and Google will be able to stride through the wreckage of the battlefield secure in the knowledge that the better off than it was before.