Microsoft (chart here) announced it is backing out of its offer to buy Yahoo! (read article here). We should all breath a sigh of relief.
Twenty years ago Microsoft was well on its way to taking over the desktop in corporate America – resulting in domination in homes as well. Once Microsoft won, the amount of innovation in desktops declined. As Apple (pre-iPod) fell by the wayside Microsoft became a Locked-in machine Defending & Extending its Success Formula as users had practically no option for not only operating system but the applications – such as desktop worksheets, word processing and presentations – sold by Microsoft. Microsoft developed no internal Disruption mechanisms (save for Mr. Gates’ lone effort to launch IE and turn on Microsoft to the web), nor White Space.
Microsoft’s single minded focus on the desktop meant that it never developed any skill at developing new things. Microsoft’s acquisitions always ended up in the acquirer being swallowed, and usually the people leaving as the technology was marginalized by the "not invented here" mentality inside Microsoft. If Microsoft acquired Yahoo! we can easily predict that within short order Yahoo!’s competitiveness would decline further, making life easier for Google and destroying value for Microsoft’s shareholders. Without a Disruption, Microsoft’s organization would not value Yahoo! and without White Space Yahoo! would soon disappear into the bowels of the Microsoft machine – with so many billions of dollars lost. Microsoft has no idea how to compete for ad sales, nor how to compete in the "Web 2.0" marketplace – and their acquisition of Yahoo!, which in theory might sound good, would have been a disaster leaving the market with even less competition for Google.
Yahoo! got itself into this problem by management trying to Lock-in on a Success Formula and then Defend & Extend it in a dynamic marketplace. Remember when almost all of us opened our web browser to the Yahoo! home page? But leadership frittered their early advantage away by not maintaining Disruptions and not keeping enough White Space alive to prepare for competing with Google. But combining 2 D&E organizations is not the route to success. Rather, it’s like injecting the flu into a cancer patient.
Yahoo! needs to use this Challenges as a wake up call. Leadership needs to internally Disrupt big and fast. Start talking seriously with News Corp. about some kind of relationship to grow, including possibly joint venturing with MySpace.com. Look for anything valuable left in AOL over at Time Warner. Explore new technologies and the emerging Facebooks out there. Yahoo! needs Disruption and lots of White Space, not the closed-minded D&E mentality at Microsoft which would be sure to suck all the potential life out of this struggling competitor.
And Microsoft should start paying dividends. Big ones. Microsoft is generating huge positive cash flow from its near monopoly of the desktop. But since the company won’t Disrupt (Steve Ballmer is the quintessential D&E leader), and it has no idea how to create or manage White Space, give the money to shareholders. Let them find growth opportunities. What Microsoft most needs is new leaders – people who will Disrupt and create real White Space to develop a new future. Microsoft has to overcome the powerful Lock-ins created during the Gates/Ballmer regime if it is to be a powerful competitor in 10 years. But, if the board won’t replace the leadership then at least give the money to shareholders before management fritters it away trying to pretend this is still 1988.
At least we can all breath a sigh of relief that Microsoft (at least not yet) hasn’t thrown away a ton of money on an acquisition they don’t know how to manage, and Yahoo! hasn’t lost its opportunity to evolve to a more competitive Success Formula, and we all aren’t destined to have a monopolistic controller for internet ad buying called Google. That future will leave us with about as much creativity in the Web 2.0 marketplace as we get today out of Microsoft in desktops.