By the time you read this on Monday morning you will be positively sick of reading about Microsoft's $44.6b bid for Yahoo. All the articles have focussed on search; pointing out how Microsoft (and indeed Yahoo) lag behind Google and how this is a 'catch-up' move for Microsoft. Then the articles talk about advertising revenues with the same conclusion. Bluntly, I think that this misses the main point.
In Microsoft spends big to catch Google in the Telegraph on Saturday, my friend David Mitchell from Ovum got closer to my view:
But for David Mitchell, senior vice-president of IT Research at Ovum, there is another reason for Mr Ballmer's swoop - to protect Microsoft Office's dominance.
Within a few years, Mr Mitchell predicts Google's nascent word processing and spreadsheet applications - hosted on its own servers - could be good enough to challenge Office.
"Rather than spend a few hundred bucks on Microsoft Office, businesses could get Google applications either for a small fee or for free via an advertising-supported model.
"Yahoo!'s subscriber base is bigger than MSN's, giving Microsoft a distribution channel plus online engineering capability to improve its own Office Live offerings [a direct rival to Google's], to stop what could be the long-term undermining of a profitable revenue stream by Google."
But even this doesn't go far enough.
There is a major revolution going on in computing. I've written about it so many times that readers must be bored by now. I have been trying hard to find a term that embraces SaaS, Web 2.0, social networking, my "Martini Moment meets my MobiTop" etc. On Friday, I went to lunch with Guy Hains who runs CSC in EMEA. Being one of the biggest outsourcing companies in the world, he neatly encapsulated all of these things in the term Personal Outsourcing. (I haven't heard that term applied to IT before and I'm sure I will use it again. Might even, in time, claim it as my own!!!)
The winners in the upcoming revolution are the companies that control Personal Outsourcing. Currently, Google seems the most likely front runner in Personal Outsourcing, with its investment in data centres, Google Apps and even in bidding for mobile spectrum. If that turns into ownership of that space (just as Google 'owns' search) Microsoft's business model is adversely affected. Gates and Balmer know that only too well. Maybe they think that winning Yahoo will enable them to be one of the main players in that space. It's probably too late to build it all from scratch.
Will it work?
Dislodging Google in search is going to be a major problem; akin to dislodging the Apple iPod in MP3s. Combining the #2 amd #3 in search does not make you #1 - something that HP found out to their cost when they acquired Compaq.
Yahoo is a real mishmash of businesses. I use Yahoo Finance every day but I've never used anything else. Whereas I know what Google might do in Personal Outsourcing, I'm less sure what Yahoo brings to that party.
On top of that, I've spent decades saying that BIG acquisitions in our sector basically don't work. This is rather neatly illustrated by almost every newspaper saying that the previous biggest acquisition in the sector was Time Warner and AOL - and look what a disaster that was! But it gets worse. The more the companies rely on people (rather than products or assets) the higher still the chance of failure. The more differences there are in 'people culture' the chances of failure rise still further.
This is a fight for the long term survival of Microsoft. Microsoft has owned our desktops for over 20 years. The fight now is "Who will own Personal Outsourcing?". I have great doubts that Microsoft buying Yahoo will help them much in that all-important battle.
Footnote - Re my post last week - 2008 The Year to be Boring? - I'd like to remove my reference to Microsoft. If they succeed in winning Yahoo, they will have become far to 'risky' for such an accolade!
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