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The unsaid truths about the Microsoft/Yahoo deal

Naturally been reading a lot about this deal, mostly at work, but a little in my own time as well, and it’s quite interesting to see the varied coverage. Mainstream media are just fawning over Microsoft as usual, talking up how clever they are, but as usual, they’ve missed the point. Tech news has been smarter, but I’ve rarely read a few key points.

The most interesting to me is that this is a clear admission of absolute failure by Microsoft. They still dominate the desktop and OSs and make huge money from those sectors, no matter how lumbering they appear. But they have absolutely failed in the online space. Spectacularly so.

They are saying loud and clear that they can’t compete with Google at all where they are now, so this is what they need to do to try and get somewhere against them — the biggest aquisition deal in their company’s history. They still have a tonne of cash on hand, so an aquisition deal is all they’ve got left.

(A far cry from the “Microsoft backs Google into a corner” rubbish that some media is running with.)

Secondly, if they think this deal is all about search and advertising, they’re probably going about it the wrong way again. Even combined, Microsoft/Yahoo still only represent about 30 percent of the online search/ad market, still less than half of what Google have. What they should be doing is looking at their strengths and Yahoo’s strengths — online applications and e-mail. I think Gmail is the best, but the market shows Yahoo’s e-mail is the biggest. And Microsoft has the obvious advantage in application software, which could work very well combined with Yahoo’s consumer online know-how.

Instead, they’re trying to take on Google at what they do best — search and advertising. Contrast this with Google’s approach, and what helped them to dominance. Google didn’t take on Microsoft directly for a number of years, instead working on two fields Microsoft had little direct initial interest in. And as Google came to dominate there, they could branch out more, then Microsoft saw the danger from this new rival.

So if Microsoft wants to fight back against Google, is trying to attack them directly the right way to go, when Google did the opposite in return to begin with? Only time will tell I guess, but there’s a long way to go in this whole battle.

The other biggest issue is integration of product — does Microsoft want to become more like Yahoo online, or make Yahoo more like Microsoft? The former would make more sense (and more likely bring success), but the latter seems more likely given Microsoft’s history — and more likely to ruin this deal. Yahoo have created and bought a good set of consumer online properties, while Microsoft have had very limp success, if not outright failure. Microsoft just doesn’t seem to know how to reach consumers online, while Yahoo have done very well in that aspect of their business.

People joined Flickr and because of the quality of service and innovation they offered. Microsoft just didn’t have that and still don’t, despite the resources they have. If Flickr ends up looking like Windows Live Photos, people will leave in droves, because that’s not what they signed up for.

So really, if Microsoft wants to buy Yahoo for their user base, the best advice they could take would be to not drastically change the Yahoo properties at all.

There’s so many other issues (such as corporate culture, Yahoo’s embrace of open source vs Microsoft’s hate and the Australian implications with NineMSN vs Yahoo7), but these above points are mostly being overlooked.

Addendum: Will people stop talking about Microsoft’s monopoly and Google’s “monopoly” as if they’re the same thing produced in the same way? The legal status of monopoly doesn’t come from dominating a market alone, it comes from dominating a market then abusing that power to keep the monopoly by crushing, damaging or abusing competitors. There’s been an abundance of information over the years to show how Microsoft did that, but none as yet, as to how Google might do that. The worst Google seems to get is speculation on how they *might* abuse their power — but they haven’t done it yet.

(Wow … that’s the most I’ve written about technology for a while …!)

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