On Friday Microsoft (see chart here) announced an offer to buy Yahoo! (see chart here) – [read articles on acquisition offer at Chicago Tribune here and Marketwatch here]. The world’s largest software company admitted it fears Google, and to play catch-up in on-line ad revenue it has decided to buy Yahoo! Because of its huge cash hoard, if Microsoft wants Yahoo! it will get it. And Yahoo! will add revenue to Microsoft. So Microsoft will exchange cash for new revenue, and ostensibly growth. Is this a good thing?
Microsoft almost missed the internet market entirely. Wedded to its desktop software sales, Microsoft was not an early participant in the internet. Then, Bill Gates realized that "owning" the desktop was not enough as users become interconnected. Quick as a whip he reached out to Spyglass, one of the commercial applications of the Mosaic web browser from the National Supercomputing Center in Illinois, and got a license for what became Internet Explorer. Whew! Microsoft avoided being swept by upcomer Netscape and stayed in the personal computer game.
But, Microsoft customers and investors should be worried. It wasn’t Disruption and White Space that led to Microsoft’s decision to launch IE. And now, a decade and a half later, Microsoft again has not used Disruptions and White Space to develop its next market move. Instead, it is hoping an acquisition can save the company from missing the next big move in the Information Economy. Twice Microsoft has reached into its cash horde to save itself – and this time it has made the move much, much later than it did the first time. Google is far out in front, and what Microsoft brings to Yahoo! is unclear. Google is #1 in search engine use (far ahead of Microsoft), and it dominates the ad placement business – more than twice the size of Yahoo! Microsoft may bring cash to Yahoo!, but it is unclear cash is enough to take a front runner position.
Microsoft figured out how to be the most effective competitor for small computer operating systems and personal computer applications. And the company prospered from sprouting White Space teams that figured out how to lead the personal computer movement. But since the internet came along, Microsoft has struggled. Microsoft is Locked-in to its monolithic views the PC world, and with each technology wave the company demonstrates it is unable to foresee a market leading future. The decision to buy Yahoo! is a Defend & Extend move taken to keep from falling farther behind – not the result of an internal Disruption and White Space intended to yield a new Success Formula for Microsoft. It is unlikely that Yahoo! will prosper more greatly under Microsoft ownership. Rather, it is likely that like most Microsoft acquisitions Yahoo! will struggle under the weight of Microsoft Lock-ins which slow growth and retard improved returns.
Microsoft was an incredible pioneer that in competition with Apple Computer changed the face of modern computing. But where Apple has moved on to music downloading, music players and even mobile phones Microsoft keeps trying to capture past glory. In the information economy, this approach has proven a disaster to everyone that has tried applying it. Soon not only will Microsoft be worrying about Linux sales, but how to catch the powerhouse Google with a tired, second position subsidiary Yahoo! This does not bode well for anyone relying on Microsoft long term.