[Disclaimer: Though I work at Yahoo and know several Microsoft folks, I have absolutely no insider knowledge related to this post.]

Every now and then someone floats that idea that what Microsoft most needs to "win" on the Web is to buy someone else, typically AOL or Yahoo. Henry Blodget's Microsoft's Long, Slow Slide Into Web Irrelevance, Greg Linden's Is Microsoft's Web war lost?, and John Battelle's When Microsoft (and Yahoo) Are Sucking Wind, Is It Fun to Be Google? make me wonder if this a better idea (for Microsoft) that I had first thought.

Sure, there would be cultural problems, integration challenges, and many people who'd likely walk. But at the end of the day, Microsoft would end up with a much larger set of online services, a better advertising network, and people who know how to build, brand, and market web stuff that people actually use.

Yahoo would suddenly be part of an organization with an even more diversified revenue stream (it's improved a lot since the Tim Koogle days, of course), very deep pockets, and some serious bargaining power.

I know that Microsoft takes the long-term view. They're often quite comfortable pouring money into ventures for years before they make a profit. (You know, wait for version 3.0...) They can afford to do that. But on the other hand, I look at how long they've been trying to get good at the web and start to really wonder. They say they're serious about it, but some days I find that hard to believe. It's been a long time and the web moves quickly.

Don't get me wrong. They've built some great stuff. TerraServer is awesome and their Local stuff really shows promise. But this is 2007 and Microsoft is the biggest software company in the world. I expect more. A lot more.

The only glimmer of hope is the thought that thousands of developers who were working on Vista are finally getting feed up to work on Web related projects. A few folks mentioned this when I visited Microsoft a couple months back. That could result in some very interesting products in a few years, assuming they can ship on a web time scale (rather than an OS time scale).

So anyway, what if...?

Discuss. :-)

Posted by jzawodn at January 30, 2007 08:19 AM

Reader Comments
# TMS said:

Gosh, given the similarities between the development and timing of Panama and Vista I thought Microsoft had bought Yahoo!

:)

on January 30, 2007 09:20 AM
# said:

Microsoft and Yahoo! have too many products and BUs, all doing their own thing on their own little island. Management in both companies have not put forward a vision of where the companies should go re the Web.

Without a clear vision, just merging the two companies would present something even more mixed up, and which burns even more money.

There needs to be a generational change on the management level at Microsoft and Yahoo! to make the change.

on January 30, 2007 09:30 AM
# Jim Messenger said:

Jeremy,

You left out the part about them finally having a decent search engine.

Story dugg here: digg.com/tech_news/What_if_Microsoft_Bought_Yahoo

on January 30, 2007 09:32 AM
# Greg Whitescarver said:

One thing Yahoo! has going for it, based on my limited understanding of how Yahoo! works, is that its web strategy involves a 'federation' of applications. And that can't just be chalked up to not-yet-fully-integrated acquisitions (great acquisitions) like Flickr, del.icio.us, and Upcoming. For instance, with Yahoo! Mail Beta, I actually have a second choice on three big ones: mail, contacts, and calendar. The calendar functionality on Beta isn't complete yet, so I still use the old calendar, but I use the new interface for mail and contacts. While it may seem strange for Yahoo! to have two distinct offerings, it's great that I'm allowed to choose.

And when I use Flickr, I really don't even think about the fact that it's owned by Yahoo!. That may be a traditional marketer's nightmare... using a site without thinking about the overarching 'brand', but a smart company would be happy to hold my attention by any number of names, and Yahoo! does.

With XBox not running Windows, and Zune having the potential to take on a life of its own, maybe Microsoft is beginning to let go of the rigidly centralized branding model. If that's true, maybe it won't be too much of a disaster if Microsoft buys Yahoo!.

p.s. AOL? What's AOL?

on January 30, 2007 09:54 AM
# Joe Duck said:

I'm for it!

Actually, I think you may have an important piece of insider information which is this: Would Jeremy walk or stay? I think you wrote some time ago that you were averse to the idea of MS / Yahoo merger. Yahoo's got some amazing teams and you've been a part of several of them. After a merger if you and many others choose to walk I see trouble ahead. MS has some good web people but it's the Yahoo web culture that should supplant MS's languishing 2.0 efforts. However if Yahoo stays mostly intact and MS allows Yahoo sensibilities to dominate the YahMooSN internet marketing strategies we may have a winning combination.

on January 30, 2007 10:03 AM
# ieatlunchbymyself said:

well as is likely obvious by now, these two companies have in fact discussed hooking up, i believe yahoo (rightly) demanded a premium that microsoft was unwilling to commit to

its not clear that a merger is a useful strategy here

what does microsoft bring to yahoo? money? yahoo is already sufficiently capitalized to fund its strategies, and could simply issue more common stock should more funds be necessary (note that yahoo is buying back its stock over time, so clearly the company is not cash-starved). does microsoft bring significant product exposure? i doubt it. yahoo is a well-known brand at this point, having microsoft tools default to yahoo services would likely do little to address key trends in the industry, although it might provide a temporary traffic boost.

does such a merger dramatically change the advertizing market? its not clear. panama has not yet proven itself, microsoft's own alternative is likewise unproven...what is the benefit of combining them?

merging these two companies would create a overcapitalized, overstaffed, slow and stupid dinosaur trying to address too many markets at once. the markets would see "aol/tw" redux and barf on the deal. it will never happen.

on January 30, 2007 10:27 AM
# Anatoly Lubarsky said:

Well, Yahoo is #1 on the Web.
It is a mistake to sell yourself when you are the leader.

on January 30, 2007 11:19 AM
# Abhi said:

I'm not sure I'm keen to see MS buy out Yahoo. You judge a company by its prior acquisitions and MS hasn't done terribly well with its previously acquired web properties. Therefore I have no great hopes that the marriage will be better than it is now for both companies separately. This will be like Time Warner AOL where Yahoo will be forced to play a subordinate role, much to the dissatisfaction of both. At this point of time, I would suggest MS to buy various smaller successful web companies and meld them together that looks cohesive. For some reason, I can't understand what MS pays its web div employees 100k+ for. I have a few classmates who are at MS and they are the best and brightest from my class. Now, if MS hires such people and can't bring out the best in them, it's a problem with MS. MS has gotten too big. It doesn't need to get more gargantuan swallowing Yahoo. Developers who are paid far less come up with much better solutions. My suggestion would be to make the web div of MS separate from its software one. Appoint a good guy and run it like Ricardo Semler runs Semco.

on January 30, 2007 11:55 AM
# Diorex said:

Would you still show Google ads on your blog if MSFT & YHOO merged?

This makes sense on so many levels. Microsoft should have bought AOL instead of trying to build MSN, and I think Microsoft and AOL both regret the deal never got done.

I suspect that this is in the back of their minds as they mull over the premium they would have to pay for Yahoo. They probably truly felt they could build it cheaper when they left Yahoo to start serving their own ads. Now I suspect they are thinking, it is easier and cheaper to acquire than to build.

Yahoo probably has more to lose than gain from a transaction. They would still be #2, still be fighting to maintain market share and still be trying to find an angle to attack the big G. Yahoo is going to survive online regardless. Softy on the other hand might see the internet to continue to be a giant sucking sound.

on January 30, 2007 01:26 PM
# Brad said:

The whole concept worries me for the following reasons:

1. Every web property that Microsoft has bought in the past has stagnated or died on the vine. I see no reason why the same thing will not happen to Yahoo if acquired by MS. These MS guys are just hard core clueless about the internet.

2. Frankly we need more competition out there in the search marketplace not less. (And Yahoo could certainly stand to do a little more competing in search too. *hint*hint*)

3. Yahoo does not need MS to fight the search engine and PPC wars - it has all the resources it needs. What it needs is a strategy, a mission, priorities and leadership to get all the parts of Yahoo working together for the same goal.

on January 30, 2007 02:55 PM
# Dan said:

Isn't msn enough? It is best to leave yahoo as a separate "competitor." Yahoo has been making great strides in the right direction. Lets not stunt their growth with a take over.

on January 30, 2007 05:31 PM
# A loyal Yahoo! user said:

Yahoo! has been trailing behind for a while and seems like being comfortable as #2 after G...
But game is not over yet. There are still undiscovered opportunities that can bring ten of billions of annual revenue and this can easily change the players' position.

Seriously, I have a patent application about a business opportunity that can generate $10B+ in annual sales in US alone with 50%+ profit margin that every online player, such as Google, Yahoo, Microsoft and AOL etc, has been dreaming about. If any corporation is interested in this, please contact my attorney at:

Pacific Crossing Law Office
650-579-6686

Jeremy, you may contact me directly if you are interested too ;)

on January 30, 2007 09:29 PM
# dave mcclure said:

seriously, i've been calling this one for over a year now.

one of these deals should really happen soon:
* eBay + Yahoo (already partnered)
* MS + eBay (perfect if MSFT wants Visa/MC-killer)
* MS + Amazon (cheaper version of eBay deal)
* MS + Ask (by way of IAC, bargain basement search)
* MS + Yahoo (the most obvious one to combat the GOOG)

please Steve/BillG: for the good of the internet economy, pull the trigger on this one already!

(speculation is free, and fun :)

on January 30, 2007 11:34 PM
# JMX said:

If Microsoft bought Yahoo it would be much like it was when AtHome bought Excite and when AOL bought Netscape and when CMGI bought AltaVista.

Investment bankers would party that big deals get them big bonuses.

Intel and AMD would cheer as Yahoo would be rewritten in C# and SQLServer and require 10X the hardware.

A bunch of redundant employees would be layed off.

A few people would change their home pages.

But the rest of the world would go on fine without them. Most searches would still be done on Google. Most people would use AOL or whomever AT&T partners with if the SBC/Yahoo deal dies. I can't imagine any other major changes.

on January 31, 2007 09:08 AM
# Ryan said:

I work for Yahoo! and I can say I would die the day Microsoft bought us. I'm very proud to work for Yahoo!, even with all the negative press that's been floating around.

We have some awesome products and I would not want the Microsoft image tarnishing them. I think I would seriously consider leaving if MS bought us.

-Ryan

on January 31, 2007 12:38 PM
# Jason Burns said:

It's an interesting thought for sure. I think Microsoft has done well with buying talent, but I think they have grown very good at building market segments as well. I think the real question will be, "Does Microsoft want to be an advertising engine?" That's what Google basically is and kind of what other companies are aspiring to keep up with. I would be more apt to buy Yahoo than AOL.

on January 31, 2007 02:31 PM
# Addurobi said:

Eh, shoemoney already talked about this bud. Wonder why it's popular on digg.

on January 31, 2007 08:23 PM
# Randy Stewart said:

So, here's a little story I've told a few times privately, but certainly never in public before. It happened so long ago at this point, it doesn't really matter to the parties involved.

After a late Friday night down on the Santa Clara campus, I decided to sleep under my desk rather than drive home to San Francisco. I wake up the next morning to a loud booming voice that I thought I recognized. "Developers, developers, developers!" Ok, he didn't actually say that, but I shuffled to my feet only to see Steve Ballmer standing outside my cube.

I didn't actually scream, but I might have let out a small "aaaaaaaaaagh" Now, I'm too old to hate now, but then, oh man, did I hate Microsoft. If you've ever heard me swear before, imagine the cacophony of swear words that was going off in my head at that particular juncture.

Worse than just seeing Ballmer, I saw Jerry and TK as well. The only thing I could think was, "Holy crap, we're being acquired."

I mean, a clandestine Saturday morning meeting? What else could it be? I said to myself, "I'm so outta here if Microsoft ever buys us."

As this happened 8-9 years ago, nothing ever came of it (as far as I know). Jerry later told me that meeting face to face was something that they did periodically and that they did it on the weekend so folks wouldn't flip out or speculate. I don't know if I bought it, but it was Jerry, so I let it go.

Now, that was Yahoo! in the 1990s. We were less than 3000 people and growing like crazy. Microsoft would have destroyed the company if it acquired us at the time.

I don't work at Yahoo! anymore, but just given its shear size and they way it has changed since, would it be such a bad fit now? Really hard to say.

on February 1, 2007 10:03 AM
# Alex Hammer said:

Can you say visionary? Some people forget that with search (and the Internet in general) still in its infancy that the winners in the long run are certainly unknown. Web 2.0 while it looks good today, in the context of Web 22.0 is still a beginning point. So those that move aggressively but smart can potentially shift the ground with ramifications for the long term.

on February 1, 2007 02:24 PM
# icebin said:

I like yahoo more than M$

on February 7, 2007 06:43 AM
# Nehdi said:

I'm curious what the integration process between the two would look like. Looking at 4 similarly large properties at Yahoo! and MSN - for example, Front Doors / Home Page, Entertainment, Finance / Money and Autos - and comparing them, I don't see a great deal of difference. My reasons are below, and I would love to get a better understanding from those that are more knowledgeable on Yahoo! or Microsoft.

Is there a significant difference in the strategic intent of the two networks? They both appear to be well-known media networks focused primarily on advertising revenue.

Are they organized differently? I've heard that Yahoo! is organized more like a media company (e.g., less siloed) but I don't know if its true. If an integration were to occur, what would have to be rearranged at Microsoft (or vice-versa)?

Are they significantly different from a feature development standpoint? I imagine both use pretty similar agile development methods, and have similar dev / test processes. Integration on this front wouldn't require a significant mentality shift for either side.

And how about staffing? Are they staffed differently? I suspect both networks have a significant amount of resources, and that the rapid clip of development means that there are a lot of people wearing a lot of different hats throughout the process (PMs developing, devs testing, etc.). I'd be willing to bet that the teams at the two rivals are pretty consistent in terms of headcount, discipline breakdown and roles, so integration wouldn't be that difficult from a resource management standpoint.

Are they different in terms of talent? I know many here would argue for Yahoo!'s superiority, but I see both as having enough clout to woo the best coders around.

What about management? Are the two managed differently? Is there a different day-to-day ethos? I read in Matt McAlister's post (and subsequent responses) that Yahoo! and MSFT are both control-heavy with risk-averse management. Are the differences so great that a bunch of really smart people couldn't make it work?

While only an observer of both companies, I would suspect that a merger would work. It like a strong fit, and something both companies have and are considering.

on February 7, 2007 07:38 AM
# Konrad Braun said:

Cool blog. Out of curiosity, what do you think of the new "$7 Secrets" Script and how did its sudden release affect you? I just thought I'd toss this question out there - simply because I know that almost all internet marketers were affected by its release one way or another. True, not true?

Konrad Braun

on February 27, 2007 05:59 PM
# Paul Birnie said:

Staff at MSN will find their jobs replaced and be wondering - didn't we buy them?

on February 1, 2008 06:43 PM
# ggg said:

Yahoo and Microsoft mean big time for the internet. YahMic! or Yahoosoft will be their new name.

on February 7, 2008 12:09 AM
# olkainflex said:

The only victim in such a transaction might be the open source philosophy that runs through yahoo and manifest itself into Yahoo Dev Network and the exceptional work done on php, javascript, ruby even flash/flex...

on February 12, 2008 12:51 AM
# karim2k said:

And what about Yahoo? I really don't care, it's enough scrappy and spoiled even MS would be unable to do more damage to the web. what I really care is how MS would spoil flickr.

on February 18, 2008 07:02 AM
# Lisa Weihl said:

When the acquisition news hit the wire Guy Zimmerman ( remember Dr. Z?) and I (sys admin still here since 1994) wondered what your reaction was!! We were having a discussion with one of our secretaries as her son had just bought Yahoo stock and she was already counting his profit. We told her this would not just be a done deal.

Always great to see a BGSU CS student doing great!

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on January 22, 2009 01:20 AM
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