Microsoft and Yahoo!

When I read the headlines this morning, it gave me one of those sick feelings. Microsoft has put out an offer to purchase Yahoo! for billions and billions of dollars. All the financial analysis aside, I think this could be really bad for both companies.

Microsoft has a lot of cash because they control the operating systems on almost all PCs across the country. I know the Mac and Linux guys love their systems but the reality is that most people (greater than 90%) are on PCs running Windows. The reason they're on these PCs is because of innovation inside the company decades ago. Their latest release of Windows Vista was poorly thought out and executed which has become almost a part of their brand. Talk to most IT guys these days and they won't release a new product from Microsoft until it's been out on the market for some time.

I don't think the products they put out on the internet are much better. There's been lots of hype about their search systems, however, it's been just that, hype. It's really just catch up with what Google's been doing for a while. Too late, Google's almost cornered the market.

Not that Yahoo! is doing much better. They've do have some high traffic web properties but they have a hard time deciding whether they are a content provider or a search engine. Yahoo! does have some promising properties including Yahoo! mail and Flickr. In addition, their small business systems (web hosting, ecommerce, shopping) might be a hidden jewel.

With the merger of the two, however, I think you'll see two incompatible and struggling cultures come together. There is no way they'll beat what Google has created. Even though most of Google's strength is in it's search capability, they're beginning to stretch out into other things. Like Microsoft and Yahoo!, they're struggling to go beyond what made them great. With the chaos that a merger brings, however, my moneys on Google to innovate faster while Microsoft and Yahoo! attempt to frankenstein their companies.

Let's hope the shareholders reject the change and that Yahoo! and Microsoft can do the really hard work of defining who they want to be in the future and then doing it successfully.

- Paul Herring