The Ongoing Microsoft and Yahoo! (or Google?) Merger Things

Feb 05, 2008

Note: According to the latest buzz Google is trying to salvage Yahoo from Microsoft’s hostile overtures by orchestrating a bigger bid than Microsoft’s $44.6 billion. By the time I read this latest update I had already started writing on the previous scenario so I am going ahead and publishing the post.

I have had neutral feelings for Microsoft for many years. Back in the mid-90s I used to admire it for making the PC easier to use. I still remember sitting on my friend’s XT computer and working with DOS, WordStar and dBase. I was doing my computer course and outside of my institute he was the only person who had that big and expensive (Rs. 50,000 plus, in today’s rates more than $1200) computer. Then during the course we were introduced to Windows 3.1 if I remember correctly. As software became easier to use I found more and more people using computers in their day-to-day lives with greater regularity and the credit goes to Microsoft. It followed monopolistic policies but at least the computer moved out of geeky realms and became a common person’s productivity tool.

But as the new technologies emerged Microsoft became too complacent and got left behind especially by the companies like Google. Now it is just another company. It is able to sell its operating system and other software only because people have gotten too used to using them and are reluctant — even at the cost of productivity and security — to try out newer, safer and more efficient software. It is just like some companies are still running COBOL applications. Microsoft sat smug on the strength of its operating system being shipped pre-installed with more than 90% PCs. It has hardly ever produced a totally new software; whatever it has produced and marketed so far has either been an improvisation of existing software or various acquisitions. The only aggression it showed towards making forays into the Internet was when it decimated Netscape in order to promote the Internet Explorer and even that now lags behind Firefox in terms of robustness and web compliance.

Easy availability of fast bandwidth is enabling people to access conventional applications like word processors and spreadsheets online. Google’s office applications are already making a dent into Microsoft’s commercial office applications market. There will soon come a time when people will require just a basic operating system — any operating system that can be easily used — and a decently compatible browser to use most of the day-to-day applications. Other than that they won’t need anything. To top it all most of the applications are either going to be available for free (like they are presently) or through very low cost subscription system. So Microsoft will soon have to curtail its dependence on selling desktop applications. It will have to change its business model drastically in order to survive.

Although Yahoo is an old company it changes faster than Microsoft just because by nature it depends on the Internet to survive. Just like Google it depends a lot on advertising revenue sources. With $1.4 billion in advertising revenue Yahoo earned $.20 of every dollar spent on online advertising last year. Compared to this Microsoft’s MSN earned just $423 million (according to OMMA magazine estimates). On top of that with $12.65 per thousand unique visitors Yahoo has the highest CPM among the top online advertisers.

Hence one can easily make out that for Microsoft the shortest way to securing good, long-term advertising revenues would be acquiring an online company that is already a leader in this field.

In the present state of affairs as far as search is concerned, Microsoft, even when combined with Yahoo, cannot even think of competing with Google. More than 65% of search on the Internet happens on Google. This is more than double even if the searches from both Microsoft and Yahoo added together (according to Hitwise). The online ad exposure of course will get a boost and this is what Microsoft must be aiming for.

How is it going to affect all the services that Yahoo provides to its existing users? For instance what is going to happen to Flickr? Personally I have never used Flickr to host images but I know there are millions of enthusiastic photographers who use Flickr to share their images. I think the accounts will be merged with the existing windows live accounts as discussed on the Read/Write blog.

And what about search? Will you have to change your SEO strategy? I don’t think so unless there is a revolutionary change in the search concepts. My personal experience is that the most significant traffic source for a few years at least is going to be Google. The ranking system at Yahoo at present is quite weird and I prefer MSN results. Basically you should focus upon creating accessible websites with lots of relevant content and your websites and blogs should show up in all major search engines and if they don’t then it’s a problem with the search engines and not with your websites and blogs.