Microsoft made a $44.6 billion offer to buy Yahoo! on February 1, 2008, and since then we’ve been waiting to see what happens next. While nothing officially has been announced, there is speculation that the deal may be nearing its next phase. Yahoo! hasn’t come up with a miracle deal to save the company, and can only stall so long. Yahoo! has already delayed the voting for a new Board of Directors, but Microsoft “reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal”, and according at least to TechCrunch, is ready to take over the Board if it should become necessary.
However, beating Yahoo! up to perhaps get a better price, or dragging them through the mud with an acrimonious proxy takeover, really does Microsoft no good. Microsoft wants the Yahoo! brand intact, has big plans for it in fact, and a bitter fight over the acquisition will not serve Microsoft well. Rumors are swirling that Microsoft and Yahoo! are talking, and that some kind of a deal will be announced fairly soon. While Microsoft really has no reason to up the price, as there are no better offers, expect some sort of rearrangement of the numbers to make Yahoo! save some face, which of course in the end is a good thing for the brand, and as such for Microsoft. Clarification of ownership issues regarding Alibaba, which is not very interested in being owned by Microsoft, may further change the numbers. And even if Microsoft just straight out ups the price, that may be seen as confirmation of Yahoo!’s worth, a good thing once Microsoft takes possession.
So let’s say Yahoo! ends the stalling and comes to the table. Lots of questions will still have to be answered. Here’s a list of five:
- WWJYD? (What will Jerry Yang Do?)
While Yahoo! founder Jerry Yang certainly isn’t a fan of Microsoft, is there any chance that he will stick around once Microsoft owns Yahoo!? Microsoft would do well to do everything they can to compel him to stay. Certainly the transition would be smoother. But more than that, Jerry Yang embodies an open approach to software development. If Microsoft is truly becoming a more open shop, as they seem to want the world to believe, Yang would not only lend credence to those efforts, but also be able to help Ray Ozzie push for a more open approach. Keeping him could also help to stem an exodus from Yahoo! once Microsoft takes possession. It could actually put Yang in a more powerful position than he holds now, and allow him to continue to build on his Yahoo! dream. Of course the chances of Yang staying once Microsoft takes over may not be great, given his feelings about the Redmond giant. It would seem that there are real opportunities for Yang at Microsoft, however. In fact, maintaining much of the Yahoo! corporate structure, at least in the near term, would be to Microsoft’s benefit. Both Steve Berkowitz and Joanne Bradford are leaving Microsoft, and while Brian McAndrews, former AQuantive CEO, seems to be emerging as a powerful figure in the MSN/advertising space at Microsoft, there will be plenty of room for more. The Yahoo! executive team would bring in successful experience in running content portals, something Microsoft will be in the thick of with the acquisition.
- What about Asia and Alibaba?
One of the most significant assets of Yahoo! is its influence in Asia. While Google has a near stranglehold on search share in the Western world, not only is the market much less clear in China, Japan, and the rest of Asia, but the market is growing rapidly. However Yahoo!’s relationship with Alibaba, a kind of an eBay for China, is a complication. Yahoo! has a sizeable investment in Alibaba, and in return, Alibaba is invested in Yahoo! Japan. And Alibaba, and the Chinese government, may question even partial Microsoft ownership. In fact, the whole question of Microsoft and monopolistic practices will get a hard look in China as Microsoft tries to expand there. Will Microsoft sell off the Alibaba.com investment? Gaining a better foothold in Asia is one of the most compelling things about a Yahoo! acquisition, and it’s not clear that Microsoft will want to just walk away from a piece of Alibaba.
- Will the Yahoo! brand fix the Windows Live branding mess, or make it worse?
We’ve been hearing since late last summer that some big changes were in store for Live Search, up to and including new branding. Those naming plans have been put on hold, we’ve heard, which makes sense in light of the Yahoo! announcement. However something clearly must be done to clarify not only Microsoft’s branding of its live services, but its approach to them as well. Mary Jo Foley reported a name change from CRM Live to CRM Online, and gave this breakdown in Microsoft’s latest thinking on its Software + Services branding:
- “Live” refers to consumer and very-low-end small-business offerings. Examples: Windows Live Messenger, Office Live Workspace.
- “Online” refers to small-/mid-size and enterprise services that are hosted by Microsoft in its own datacenter. Examples: Exchange Online, SharePoint Online and now Dynamics CRM Online.
- “Hosted services” refer to Microsoft offerings that are hosted by its integration/reseller partners at the partners’ facilities. Examples: Exchange Hosted Services, SharePoint Hosting Services.
While this does clean things up a bit, it still leaves open the question of what to do with MSN, and Search. With Windows 7, the branding for Windows Live becomes a bit more defined, as there won’t be a Windows Mail, or Windows PhotoGallery, etc. If you want those services for Windows, you will install Windows Live (or perhaps have it installed for you on new machines). The brand isn’t quite as clean around Live Search, however (especially since Microsoft just got done changing the name from “Windows Live Search”). Was Live Search about to be rebranded back to MSN Search? That might explain the somewhat confusing billboards Todd Bishop spotted. However none of that makes much difference now, as the bigger question is where to fit the (much stronger than “Live”, or “MSN”) Yahoo! brand into the system. Still, it would be hard to imagine giving up on MSN. Will we see Yahoo! become the new Search brand? What will happen to MSN.com? How quickly will the various services merge? Branding is going to be one of the most important aspects of the acquisition in the near term, and up until now Microsoft has shown little ability to get branding right.
- What about Messenger and Mail, how will like services combine?
Our friend Long Zheng put up a nice comparison list of Yahoo! and Microsoft services back when the acquisition attempt was first announced, and there is a lot of overlap. Some of the services seem to be no-brainers, like keeping Yahoo! Answers and dumping or folding in QnA, if only because of the vast difference in usage numbers. Many others, however, are going to be tougher calls. At first, most likely services like Messenger, Mail, and Yahoo! Finance/MSN Money will exist side by side, perhaps with some co-branding. More than branding, however, there will be a significant amount of work in combining services on the back end while not losing market share. Consumers are going to want to see progress, and more value from a combined Microsoft/Yahoo!. Will Microsoft be able to deliver?
- Sure branding is going to be a problem, but Yahoo runs on Linux, Apache, and Hadoop. How will Microsoft absorb these incompatible systems?
Microsoft is pushing itself as a new, open, company, even if no one seems to be listening. They’ve even started an Interoperability Forum over at MSDN. Maybe they should post a question on how to incorporate Yahoo!’s servers into their own systems. Merely porting Linux systems over to Windows, as hard as that would be, won’t be the answer, either. Yahoo! is doing some great work in not only the technology behind search, but in cloud computing as well. Microsoft may well be looking to not be so boxed in to its own systems that it can’t take advantage of advances on other platforms, especially as it tries to compete with the likes of Google. Moving toward interoperability may gain quite a bit of momentum when Microsoft finds itself running large Linux server farms, and needing to incorporate them into its existing search and cloud computing offerings.
Just the act of pulling off a $44 Billion dollar acquisition will be an enormous task, but once that’s accomplished the work will have barely begun. It seems far too optimistic to think that the transition will be smooth, but will it succeed at all? This is a big gamble for Microsoft, and we can’t wait to see what happens next.