Archive for 3rd February 2008

My Thoughts on Microsoft Buying Yahoo for $44.6B

The big news of Friday morning was that Microsoft offered Yahoo $44.6 billion for the company. On a financial level, this is a sweet deal for Yahoo. It’s not the most financially sound investment Microsoft has offered, which is why their stocks dipped 6% on Friday. No reply has been made from Yahoo, but I can definitely see them taking this offer seriously. My thoughts are summed up in three bullet points:

  • Yahoo’s management will possibly accept the offer since it is so lucrative.
  • The purchase will piss off some of Yahoo’s top talent and cause them to defect, possibly probably to Google.
  • The purchase will help Google gain a greater lead during one of the most crucial eras since the Internet began: the rise of mobile computing.

The internal culture of Yahoo is not exactly friendly to Microsoft. Yahoo is seen as an ally to the open source community while Microsoft is exactly the opposite. Yahoo is a major contributor to open source (ex. PHP’s lead developer is on Yahoo’s payroll), has an open philosophy which has shown itself in their JS frameworks, Flickr, Pipes, and various other projects, and is a major user/contributor to the open source stack in general. Microsoft is clearly not on the same page.

I’ve read speculation that the looming recession will cause developers to stick around despite a take over from a boss they don’t like. However, my belief is that great developers aren’t scared to leave since they are in high demand no matter what is going on in the economy. Some of the very best and brightest at Yahoo will leave. Any sort of exodus of major talent would destroy the current internal direction. Worse, some of these great minds would likely go knocking on Google’s doors, which is straight up ironic considering Microsoft’s intentions. This leaves gutted, possibly begrudging or de-motivated teams, recipes for not producing innovation.

Which leads to my final point: Microsoft’s goal is to beat Google by merging with Yahoo’s resources. It is my belief that this move could ultimately prove counterproductive. The integration process of merging departments, axing un-needed employees, changing internal processes, shifting internal priorities, introducing new management, and replacing fleeing key talent will cause major stalls over in Yahoo… At Google’s benefit. Microsoft is no stranger to mergers and acquisitions, but Yahoo would be a major, major purchase with a sizeable employee count. Microsoft will have its hands full for months.

All this is going to happen during a period I consider to be a key moment in the rise of mobile computing. A large chunk of search traffic will begin to come from mobile browsers, and the web will shift to the mobile platform. During such a crucial stage of computing, this sort of disruptive purchase may help Microsoft and Yahoo miss the bus.

So while I wouldn’t be surprised if the floundering leadership at Yahoo took the offer, I also expect this to work out as the most counterproductive and costly purchase in Microsoft’s history.