Sunday, February 3, 2008

$50B down the drain, or Microsoft bids for Yahoo!

I am writing this not as a Googler, but as a really pissed Microsoft shareholder.

Yes, I still have all my Microsoft ESPP shares, plus all the stock bonuses for the 9 years that I've worked there; I haven't sold a single share so far, only options. I should have when it hit $37. Now I feel like an idiot.

Anyway, by now it's a broken record.

As soon as Microsoft lines up a bunch of cool products - SQL, Server, Office, etc, - and it starts sounding like they are going to make another ton of money, and the stock starts to sort of come out of doldrums it's been in the last 10 years - out comes Ballmer and says - "Great news! I know what we're gonna do with this money - we will spend it on MSN!" - and the stock goes down like a rock.

This time it's 10% down, and something tells me we haven't seen the end of the tunnel.

Why? Because it's an incredibly risky, high-friction project, and the benefits of it are highly doubtful.

Let's start with frictions.

For one, Yahoo is technologically very different from Microsoft - it's a Unix environment, and that means that they probably have in-house implementation of everything - from RPC to deployment software. I bet also a lot of it is written in Java.

I don't think Microsoft will tolerate Linux and Java running its production software for long, which means that for the next year or so the entire Yahoo engineering team will be busy learning about Windows, ASP.NET, C#, and Microsoft infrastructure and deployment technologies, and migrating its software to the new platform.

It would be a year spent not developing software for the customers, something that both of the companies which are already falling behind their competition can ill-afford.

Second, I bet Yahoo has a lot of Unix bigots, who are not going to be excited about working for the company they have spent most of their lives abhorring. They will probably quit. Mergers often lead to the loss of 10-20% of the work force on the best of the days. This one will be a lot worse - 30%, perhaps 40%, maybe more. The competitors will get to skim the best of the best...

Finally, MSN must be extremely strong politically. It is obviously not the best run part of Microsoft. It has never been profitable. It always lagged behind the competition. Despite the fact that competition changed over time, MSN was never able to even capitalize on its incumbency in the market. Yet it survived for a long, long time without much turnover at the top, losing billions of dollars, and reliably getting more and more to lose.

Given that with Microsoft Redmond is the center of the Universe, and MSN apparently owns Ballmer & Co lock, stock, and barrel, heart and soul, where does this leave Yahoo, which is in California? I don't think Yahoo management would get much say in anything, and there will probably be an exodus of leadership to rival that of the Java/Linux afficionados.

Given all that, what is it exactly Microsoft is getting for its $50B? It's not the technology, because the technology is incompatible and will largely need to be rewritten. It's not the people, because a lot of them - and probably the most employable ones - will quit. It's not the strategy and understanding of the market, because that would still be run by whoever runs it now, given their political clout.

They will get a bunch of users, but if history teaches us anything, the user loyalty is very weak in this day and age. The most recent example is the exhodus of people from MySpace to Facebook. And after they spend valuable time on integrating Yahoo's technology, they are liable to lose even that.


dzembu said...

Hey ! Who cares ? :-) Apple ships Mac Book Air today! Celebrate !!! :-) ( Btw, it is a killer gadget to browse WEB - it lucks DVD , bulk and weight, but have nice screen and keyboard and good CPU , all under cool OS X) Anyway, it is just me : looking on the good things...

Alex Efros said...

Yahoo Inc.'s board plans to reject Microsoft Corp.'s unsolicited $44.6 billion offer...