Kylemcnabb_4RobkoplowitzBy Kyle McNabb and Rob Koplowitz

This morning Microsoft announced a $44.6b bid to acquire Yahoo! Driven largely to bolster Microsoft’s search and advertising business in order to better compete with Google, this move does have a few hidden gems that will impact enterprise IT environments. For insights into the consumer side of this story, see the post from Charlene Li and Shar  Van Boskirk.

Google has not only thumped Microsoft in search and advertising, they have also taken the mind share lead in providing on-line business applications. Google Applications have had strong uptake in the consumer and, to a degree, the small business market. The delivery of business applications through the cloud might pose a bigger ultimate threat to Microsoft than losing the search & advertising wars. Microsoft is a huge, diversified company, but make no mistake, Office is paying more than its share of the bills. Anything that threatens Office threatens Microsoft. And Google threatens Office.

Microsoft has developed a strategy to compete with Google and the rest of the Software as a Service (SaaS) vendors that they call Software + Services. Microsoft’s Software + Services logic is simple and straightforward to understand. Microsoft will leverage their existing , dominant position on the desktop and compliment the software already on our computers with additional cloud based capabilities. Their argument, which is sound, is that Software + Service allows all of us people that use Office to continue to use these tools while gaining benefits offered in the new model; easier collaboration, greater mobility, progressing towards a single source of content truth, and the ability to access this content from any machine.

Yahoo! brings a number of assets to Microsoft that could ultimately help in their battle for cloud based enterprise computing:

  • The lines between consumer applications and business applications are blurring. We use technology at work and at home, and the technology we use increasingly crosses the home/work lines all the times. Many of us use iPods, Google Groups, instant messaging, Google Mail, Hotmail, and Yahoo! throughout the day at work and home. Plus, our ability to self provision our own technology — desktop search anyone? — continues to rise. Yahoo! brings lots of users to Microsoft. And Yahoo! has a great deal of experience developing and delivering online services to people (Yahoo! Groups, Mail and IM all have huge bases that could ultimately be customers for Microsoft enterprise offerings ). And Yahoo!’s experience developing these services will really benefit Microsoft’s own Live initiatives.
  • Yahoo! has massive data centers that are extremely efficient. If you want to make money in cloud based computing (and Microsoft does!) you need to be able to run efficiently and drive down data center costs. Microsoft is in the process of building out multiple massive data centers, but the additional capacity and expertise that Yahoo! brings to the table will be welcome assets in developing a long term software +services strategy.
  • Yahoo! brings expertise on small business application delivery. They have some very good technology on lightweight client delivery, particularly in the area of mobile clients that Microsoft could leverage.

Now, the big question that remains to be answered in all of this is whether an acquisition that is led by the MSN team could ultimately provide value to the enterprise software folks that work in another building. In general, cross-organizational cooperation has not been a strength of Microsoft, but with barbarians like Google at the gate, it might be time to break down some silos.