I wrote a while back about the Downfall of the Microsoft Empire. In that article I wrote about all Microsoft’s competitors and how they were attacking Microsoft on all fronts. I digress, with today’s news that Microsoft made a $44.6B offer to buyout Yahoo, Microsoft may be the downfall of their own empire. That is not only a massive premium over the existing market value of Yahoo, but a futile attempt against Google. According to Compete.com, Microsoft is basically saying that each Yahoo customer is worth $1200. How long do you think it would take to recoup $1200 per customer on search advertisements? Exactly. And do you think that with a merger the customers are going to stay loyal to Microsoft or Yahoo Search?
How can the number #2 search and #4 search leaders, who are falling further and further behind Google, beat Google by merging? Large mergers and acquisitions are almost certainly doomsday for corporations. Look at these horrible big-time mergers and acquisitions: HP & Compaq, AOL and Timewarner, Sun and Cobalt. Why should Microsoft take such a huge risk? With Microsoft’s giant cash war chest, why make such a move? Why not buy a smaller search leader, like Baidu? Less risk, more agile synergies, faster integration. You don’t have to overtake Google to continue to have a successful company. Microsoft is still a successful company, albeit an inefficient innovator; however, their businesses, overall, are still doing well. With this move, they’re running scared and that often mean poor decision-making.
If this large buyout does occur, it can only slow down both Microsoft and Yahoo as they begin to integrate and merge their disparate technologies and staff. Integration will be a multi-year project. This would allow Google to further push out their formidable lead. At this time, I believe Google already has a 5 year advantage on technology and infrastructure when compared to Microsoft, Yahoo, or anyone else.
With one swift move, Microsoft may undo 30 years of excellent business execution. Without a cash war chest they may be defenseless. In other words, Microsoft may be the downfall of their own empire.
3 replies on “Microsoft Is Their Own Downfall”
I just finished reading Engadget’s article about Microsoft’s $44.6B offer to buyout Yahoo…. a merger that could be either huge, or damaging; the latter more likely. Jesse, you’re article has a broad, and accurate viewpoint of how Microsoft may very well be the fault of their own demise.
This merger could be a two-edged sword that may do more harm than gain them leverage in the search and/or advertising business. Google has a big lead that I don’t see losing ground at any point in the near future. I think the MS+Yahoo! merger is a sad and silly decision on Steve Ballmer’s part… only time will tell… this may be the end of MS.
Now if only Apple and Google could team up (not merge) and offer some joint services/products, that could be a BIG push forward for both. This is the only large merger that I could see being a profitable and successful action.
That’s utter crap to say that Microsoft will fail due to the sheer size of the Yahoo purchase. What you are forgetting is that ‘software’ is a virtual world and there are no limits to returns or investments you can make. If Microsoft does indeed succeed in merging, it has a ready market of 30 % to work on therefore making it a success. If it fails, well, easy come, easy go. They have the leverage of existing businesses. It’s software after all which made both MS and Yahoo giants in the first place. Exactly the same with Google too…
Harshavardhan, while you are right about MS, Yahoo and Google all becoming “giants” in the business do to software, Google offers almost all of theirs for FREE. They have an advertising business model which is where a majority of their income comes from, not from software. They are the leader in Search…and will continue to lead for years to come.
Microsoft on the other hand hardly offers anything for free… so they approach this differently than Google. While software can be sold over and over again without “limits to returns or investments” it’s NOT automatically a success. For instance, look at VISTA… it’s a shameful piece of software that was a total flop (IMHO it should be scrapped and recoded from scratch). It has caused the majority of users to downgrade to XP … lame. But this isn’t the first time MS has announced crappy software… they’ll do what they always have done…offer security and feature updates, service packs, etc. until Vista is useable or maybe adequate as an OS.
It will take at least a year for MS and Yahoo to figure out how to work with each other and understand each other and for executives to choose which engineer takes care of different aspects of the “Microhoo!” divisions. Also those working away from Redmond might feel left out of the loop because they won’t be in the “inner circle” of events and meetings taking place there. It will be a while before the MS + Yahoo merger becomes a success.