YAHOO! TAKEOVER MAY NOT CURE MICROSOFT'S INTERNET WOES

Published Feb. 5, 2008 in "The Oklahoma Daily"
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Published Online by PBS' "Washington Week" News Program
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Computer giant Microsoft recently put forward an unsolicited bid to buy out Internet pioneer Yahoo!. Bill Gates & Co. is offering $44.6 billion.

Yes, you read that right. Billion.

If Yahoo!’s board of directors accepts the currently unwelcome bid, this will be the largest acquisition ever made by Microsoft, and likely the largest buyout ever in the high-tech sector.
The main reason the wizards of Windows are willing to shell out that kind of money is the sheer dominance of Google in the Internet search business and related areas.

In recent years, Google’s share of the market has grown steadily at the expense of its competitors.

The merger would bring together Yahoo’s still-large Internet foothold and Microsoft’s technical know-how, and seemingly limitless funds.

Microsoft’s huge offer highlights how much it wants — and needs — Yahoo! in its fold. It’s banking on the idea the merged juggernaut would make huge catch-up strides against Google, and eventually supplant it as the number one Internet search company.

It will not be that easy.

While Microsoft is almost a household name, it’s seen as something of a lumbering dinosaur in tech fields, rooted in the past. People are most familiar with its Windows operating systems and Office software suite. The original Windows 3.1 was revolutionary in its time. Subsequent releases, while still popular, have been criticized as not being substantial improvements over their predecessors. Adding to the problem has been the continued existence of random bugs and software problems with almost all new Windows products. True, Microsoft dutifully issues updates and patches, but the problems do their damage to the company’s damage nonetheless.
Microsoft’s own Internet search business, Live Search, formerly Windows Live Search and MSN Search, is in more dire straits. Most people don’t even know it exists, other than its default presence within the new Internet Explorer. And even that has not really resulted in exposure, given Internet Explorer’s own fading popularity in light of the more secure and user-friendly Firefox.

Yahoo! also has been recently seen in a similar light. It was one of the earlier search companies to offer other services such as e-mail. It has since branched out to include streaming and downloadable music, news, videos and more. However, it has been heavily criticized for its high volume of ads and the sometimes disjointed functionality of its services and offerings. It remains widely used, but does not enjoy the high traffic of years past. For an almost-exclusively Internet-based and search-heavy business like Yahoo!, this has resulted in painful shrinking of profits and a steady decline in stock prices. The company certainly is not down and out, but it is a far cry from the untroubled pre-Google days of the previous decade.

Speaking of Google, it currently is a $23 billion company, with a huge pool of resources at its own disposal. Its initial public offering, open sale of stocks, raised over $1.5 billion, a reflection of investor and public confidence in the company. It has conducted a series of successful acquisitions and grown steadily. From a business perspective, you can’t get much better than Google.

More importantly, Google completely dominates when it comes to the image game. This is arguably much more important than the business numbers for a company that depends on people for its revenue. When Google was first launched, it billed itself as the fresh, new alternative to established and ad-heavy search companies like Yahoo!, Compuserve and Netscape. People were immediately drawn to its clean, simple interface and highly accurate and fast search responses. This, combined with the natural support most any underdog enjoys, quickly resulted in Google cultivating a loyal fan base.

When Google began offering new services such as Gmail and the popular drafting program SketchUp, that fan base willingly adopted them. The elegant simplicity that propelled the original Google search to success is found in virtually every Google product and offering. Being the brainchild of two young computer scientists, Google always has been a company with a playful and open vibe. It’s known for being open to user suggestions, and frequently implementing them. It’s engineers are highly encouraged by company brass to pursue whatever project interests them, regardless of whether it’s on the company to-do list or not. Many Google offerings, such as the aforementioned Gmail, have resulted from these personal-pleasure projects.

The fresh, new, alternative mojo Google initially flaunted has continued and increased to this day, even though Google is now the top dog in most every field that it plays in.
This hard-earned mantle of support and popularity for Google is what Microsoft and Yahoo! must overcome. They have failed to do so separately and independently. They’re hoping to do it now do so collaboratively.

Blending two old (by Internet standards) companies with marked image problems and solidly rooted in a relatively old-school business culture to overcome a charismatic newcomer does not seem the best of ideas, however. A Microsoft-Yahoo! juggernaut may be billed as the Google giant-killer, but it must be remembered that Google itself easily and effectively killed those two Internet giants separately, and several more, in its brief time.

If Yahoo! accepts Microsoft’s dowry, both companies will benefit. But a merger of such magnitude definitely will not be without problems. Google certainly will not be standing idly by in the months to come. If the potential merger goes through, and then fails to uproot Google — which seems likely — both Yahoo! and Microsoft will be in very deep trouble.