Saturday, February 2

MSFT & YHOO: can the snake swallow the elephant?

Microsoft swallowing Yahoo! is either going to be fast and ugly, or slow and ineffective.

Good friend Goonker said it best. Referring to Steve Ballmer's quote that he feels "putting these things (Microsoft and Yahoo!) together with a great integration should be quite an accelerant to progress." Goonker says, "accelerant as in: flame out quickly?"

I appreciate that Microsoft recognises it needs to take drastic action if it's to get back into the game, interweb-wise. 

Today's offer is a big premium on the market price on the previous day's close and is sure to be higher than any price Microsoft may have taken to the table with Yahoo! in the past.

According to Comscore, Google has 77% of the search market globally, with Yahoo! only 16% and MSN a piffling 3.7%. So an acquisition might garner Microsoft a total of less than 20% assuming no overlap. I don't know the revenue share but I'm guessing it's in-line with that. Ballmer suggests it could save the two companies $1B a year, but I'd bet it would be costing $100m a year over five years to smash the two vastly different companies together.

Microsoft's web technologies are as unrelated to Yahoo!'s as the Dark and Light sides of the Force. Before you even begin your Comp. Sci. degree you've already made a decision to join one camp or the other. There's no love lost between the two sides, and very few developers jump from one camp to the other mid-career. 

Perl, PHP and Ruby developers carry PowerBooks with startup stickers on them, ride a bicycle and wear a tee and jeans. They are too skinny. They are more likely to have an iPod earbud in their ear than a phone.  Microsoft developers wear chinos and a business shirt or collared tee, carry a black generic laptop identical to their coworkers. They are a little overweight, but only because they have a good wife at home who loves to cook. They have a full schedule of meetings and tasks always with them in their Exchange-connected phone, which they carry in a leather holster on their belt, with a blinking-blue Bluetooth headset always jammed in their ear. They think the Zune is "kinda cool" but like a quiet working environment (Frank, I love you anyway man).

So the only way to borg Yahoo!s products and get them running an all-Microsoft backend would be across the vacant desks of the various Yahoo! development teams, vacant because you'd either fired them or they'd beaten you to it and taken a job elsewhere. The number of senior developers with prior experience migrating global-grade FreeBSD/Apache/Perl platforms to .NET would be approaching zero. I can't see Flickr running on .NET, ever.

Yet Microsoft can hardly continue recommending its web development products to the market while running its own consumer internet business on competing products.

Working for a Bay Area startup at the moment, and it's a tough market to be hiring developers, so a flood of ex-Yahoo! developers into the market would be good news for us and the other Bay Area startups. Most of Yahoo!'s huge developerbase is here in Sunnyvale and that big silo of developers will just fall over and empty out. That should bring hiring costs and avg.-time-to-hire way down.

Good point from good friend Luke: if the deal goes through it tightens the market for startups hoping to be acquired, leaving only Microhoo and Google as the big startup-buyers in town. Could we see Cisco step forward as a new force in consumer web acquisitions? Or HP, Intel or Apple? Each owns some consumer-facing web platforms already, each has a hardware business that could benefit from consumer lock-in via a compelling web product.

If I still held Yahoo! shares, I'd take the money. If I still held Microsoft shares, I wouldn't be happy about a deal happening. 

Because, the way I see it, Microsoft absorbing Yahoo! is either going to be fast and ugly, or slow and ineffective.

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