You probably guessed from my first take, that I don’t love a Microsoft-Yahoo! forced marriage. Mergers are practically impossible, they’re distracting — possibly deadly — in tough competitive environments, and their objectives are usually better served by other kinds of partnerships. But there’s a reason Microsoft has to do something, and this may be the best available something.
Here’s the logic:
– This is about platforms, and Yahoo, while an also-ran in that battle, is possibly the best way to jump-start Microsoft’s.
– Google is not just the most important platform player in the consumer Internet, it’s the most important in IT. Google’s search plus cloud-computing funded by advertising approach is rapidly replacing desktop operating systems as the hub of technology innovation. Heck, even Gartner says consumer is where it’s at in IT.
– Google is pulling away from the pack in Internet advertising, going from a US number two (to Yahoo) 14% share position in 2004 to a leadership 25% share in ’06 which will be bigger when we finish our ’07 analysis. That’s not even counting the other billions that flow through its network to partners. But Google is pretty much still a search-only plus remnant inventory play.
Yahoo has a big, loyal audience that uses it for content and communications, but is struggling in search, social media, and ad networks. It’s the biggest and best place to stick Google’s or somebody else’s search technology. And if Microsoft and Yahoo pull off integrating AdCenter and/or Panama across search, social media, and display, they can expose Google’s relative weaknesses: brand advertising, communications services (so far Gmail is second-tier), and a lack of audience ownership through content pages (YouTube is Google’s only “traditional” media business with any traction).
So Yahoo is probably the best use of Microsoft’s war chest. It could try for AOL, or it could try for another platform player: Amazon, eBay, even Facebook. (And don’t all of those platform players feel like more comfortable partners for Yahoo?)
But none of them would offer a better catalyst for what Microsoft needs to gain on Google: a general-purpose search-based, ad-supported platform with the promise of capitalizing on communications-based presence and identity management, with mobile as a potential game-changer.
How’s that for buzzword compliance?