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Darren Waters

Microsoft and Yahoo: Perfect partners?

  • Darren Waters
  • 1 Feb 08, 12:47 GMT

Microsoft's audacious bid for Yahoo reveals the extent to which the Seattle giant has failed to adapt to the internet age.

At first glance, it would seem that Google's success is the key motivator for Microsoft's bid. But it's more complicated than that.

Certainly, a Microsoft and Yahoo joint search engine would in theory give Google some competition in the search and online ad business. But even a combined Yahoo and Microsoft search proposition would still be a long way behind Google.

According to comScore, the worldwide search figures for last August show Google way out in front:

# Google Sites: 37.1 billion (5 billion at YouTube)
# Yahoo Sites: 8.5 billion
# Baidu.com: 3.3 billion
# Microsoft Sites: 2.2 billion

To highlight one point: twice as many people make searches on YouTube alone than make searches using Microsoft's search engine.

But this is about gearing up for the second internet age - an age where commerce, community and communications are dominated by the web.

Microsoft was late to the internet and the company has never denied that. Bill Gates failed to see the potential of the net and from the back of the pack Microsoft has always been playing catch up.

It's not been all failure. From nowhere Microsoft was able to crush opposition in the browser space and Internet Explorer is the most popular way to surf the net.

But as companies like Yahoo and Google, as well as thousands of garage start-ups have shown, from Facebook to Joost, the battle was never really about the browser - it was about services.

From instant messaging and online advertising to social networks, blogs, communities, and IPTV Microsoft is not out in front in any of these areas.

Microsoft is attracted to Yahoo because a purchase would take a key rival out of the game in one swoop.

It also gives Microsoft access to Yahoo's community strengths - websites like the popular photo-sharing website Flickr - and strengthen areas that the two firms compete around now, like communications and advertising.

Microsoft and Yahoo could also benefit from combining their engineering teams. As the online and offline worlds merge and blur in this second internet age companies need the talent to scale their products and offerings.

In the not too distant future every type of electronic device will be online - that requires user interfaces, standards, content, search, archives, video on demand, voice over IP. And that means engineering talent.

Finally, what's in it for Yahoo? Potentially it could turn the company's fortunes around. It has been on the slide for some time with high profile departures and falling shares.

There's no guarantee Yahoo will say yes. At first glance $44.6bn seems like a lot of money. But wasn't Facebook valued at $15bn only recently?

UPDATE: Our news website business editor Tim Weber has written an excellent analysis piece. He describes the offer as a shotgun wedding, with Google holding the shotgun.

Comments

From instant messaging and online advertising to social networks, blogs, communities, and IPTV Microsoft is not out in front in any of these areas.

MSN is the of the most widely used instant messaging systems used I thought. Well it is in my circle of friends anyway.

  • 2.
  • At 04:01 PM on 01 Feb 2008,
  • Rob C wrote:

A key benefit if owning Yahoo is access then wealth of user search data - hit counts, keyword searches etc - this is a very valuable asset. Microsoft search is widely used by IT profressional and not by the gerneral public who favour the friendly formats. By acquiring Yahoo Microsoft will become a powerhouse in the world of internet search and in a position to rival Google.

  • 3.
  • At 04:21 PM on 01 Feb 2008,
  • Tony Marshallsay wrote:

My "public" e-mail address - the one I use on sites like this - is at Yahoo. If Microsoft take it over, I would have to consider whether to continue using it... and if not, would then have to pay for POP3 access to download all the mail now sitting in the unlimited storage I was recently granted.

For some reason this feels a bit like when eBay bought Skype in September 2005.... and we are only just seeing the Skype-eBay interaction.

Personally I would prefer to see Yahoo and Microsoft stay separate, this is because I am a mac user and I fear that Yahoos web applications and software would become less Mac and Linux friendly.

the world has been waiting for this to happen

yahoo gets more page views that google the only reason google has so much money is through it's ad sharing revenue scheme, all microsoft has to do is to copy the system.

with the combination of iexplorer 87% of the market

xp and vista 90% of the market with asia growing fast the maths are easy.

win win for microsoft

lose,lose for google.

It is when Yahoo reported some people's privacy to get them screwed by their governement that I got concerns.
I left my yahoo email account to spamers and never use their search engine.

  • 7.
  • At 05:16 PM on 01 Feb 2008,
  • David Kawrykow wrote:

I'm doing my undergrad in computer science at a school where both Microsoft and Google come to harvest. I think some 80% of everyone I know would prefer a job at Google over one at Microsoft. Working at Microsoft is like "selling one's soul" and, at least in my small world, a lot of talented people feel that way. I obviously can't generalize this and say Google is getting more brain power, but maybe there's some truth in it.

Giving Google a meatier competitor is not such a bad idea as having one hugely dominant player in any market is dangerous.

The task of taking Google down a peg or two in reality though is enormous. Just yesterday I spoke to an elderly lady that used the phrase 'Google it'.

When you have that level of brand presence it takes a major shift in consumer preference to erode your success significantly.

  • 9.
  • At 05:29 PM on 01 Feb 2008,
  • Terry Farrell wrote:

Timing is everything.

Yahoo lost out because Google is best.

MSN lost out because it was too late: it doesn't matter if it as good as Google (or possibly marginally better). Google got there first and there needs to be some compelling reasons for users to switch their home page or default search engine elsewhere.

Neither of these giants whether merged or separate are going to knock Google from its perch without something better to offer than just size. Size will make not an iota of difference.

Same goes with Wikipedia: users are not going to switch without a compelling reason.

PS. Just in case Microsoft is reading this: making MSN the default home page on installation of Vista is only making users more stubborn and resistant to change.

A number of points:
*I'm sorry but Microsoft did not take the browser space 'out of nowhere', they in fact bundled it with their opeating system, something that was later ruled illegal by a US court, but too little, too late for Netscape
*This is seriously bad news for a lot of people, for instance Yahoo own one of the most popular (and very well designed) photo sharng services on the web, Flickr. Microsoft on the other hand have a photo services as part of their Windows Live service, which is basically the reverse of Flickr. But knowing Microsoft, they will turn of the tried-and-tested Linux-based Flickr site and move the photos over to the featureless Live photos service.
*Also Yahoo in many places support open source projects as well as Creative Commons (in Flickr) and have just pledeged to support the revolutionary OpenID open authentification system. It wouldn't supprise if Microsoft stop all this.
*People call the west free, but it always seems that those with money can easily crush others. Surely the biggest company in the world purchasing another very large one at least raises some competition issues.

At that price Microsoft is less likely trying to get Yahoo and more trying to find out ho strong it's rival is. Pulling out of a bid could kill Yahoo outright if timed correctly.

  • 12.
  • At 06:47 PM on 01 Feb 2008,
  • Ron Hackett wrote:

I agree whole-heartedly with Hugh on that, and would like to challenge this other statement also:-
Microsoft was late to the internet and the company has never denied that. Bill Gates failed to see the potential of the net and from the back of the pack Microsoft has always been playing catch up.

What about MSDN on CompuServ CIX in the DOS / Win3.1 days. Didn't IE4 integrate the Windows Desktop with the internet thoroughly? And wasn't the problem that outside the US people usually had to pay by the minuet just to see their desktop and "Channel Bar" at that time.

Of course with ASDL & Cable rental the Channel Bar idea isn't any different to today's Desktop RSS / ATOM readers and the ActiveDesktop is no different than Yahoos or Apples Widgets.

My point is that Microsoft were pushing this stuff on us before we (and the internet infrastructure) were ready for it.... It's not that they are behind, it's that the things they thought were a good idea were not at the time. They dropped them as a bad idea just as they started to become practical.

Their not behind, their out of touch with the real world. Just as most Monarchic systems tend to become.

More importantly for this report... when did the BBC stop researching the news and start making it up? Should I trust those search figures?

  • 13.
  • At 06:59 PM on 01 Feb 2008,
  • carl wrote:

This will wipe out most of Microsoft's cash reserves, leaving them with about $5 billion in change.
Yahoo! is worth nothing like that amount of money; who uses Yahoo! anyway?!

Last I heard, Yahoo! were using FreeBSD, a variant of unix; are MS going to move everything over to windows servers? That'll be a laugh, remember the fiasco when they tried to move Hotmail to windows servers? It failed miserably.
I hope this deal goes through, it'll definitely put Microsoft on the back foot and weaken their position considerably.

Finally, it seems Microsoft has learned absolutely nothing, they cannot innovate, so they make up for this by trying to buy out the competition. This time though, it'll leave them with not a lot of money left over.

  • 14.
  • At 07:14 PM on 01 Feb 2008,
  • Aswin Subanthore wrote:

Metaphorically speaking, Microsoft reminds me of Frankestein's monster--attempting to attach different parts of the internet to create a lasting identity for itself. I wish Google and Yahoo merged leaving Microsoft high and dry. I personally think Yahoo's taking over will not help Microsoft's image as a "people's friendly company". But, then again, do I sense Apple's take over of Google in near future as the answer to Microsoft? If this is any indication, Google's stock index is featured in Apple's iPhone commercials. Go figure!

  • 15.
  • At 07:15 PM on 01 Feb 2008,
  • Amy wrote:

MSN is SO OUT

think MY Space and Facebook! My Yahoo email account is old... My employer exclusively uses Google for EVERYTHING internet related, from website to inter-office communications.

Microsoft might be able to compete only if it offers a total virtual desktop, with access to programs that the individual user otherwise can't afford to purchase... A service-oriented rather than purchase-oriented approach. Especially with micro-technologies being developed that are highly desirable for the mobile executive or student, but can't support storage of many large programs.

Good news in my opinion...

I think this could be a really positive thing for people involved in search and online marketing.

A few reasons are that the combining MSN and Yahoo would give them greater dominance in the search market, therefore giving us a more viable alternative to Google for attracting traffic. Plus combining Yahoo accounts and Passport accounts will add more gravitas to the user profiling that will be coming in Microsoft Gatineau.

I've put a few more points on my blog at http://www.good-together.co.uk/index.php/search-engine-marketing/microsoft-to-possibly-buy-yahoo/ but would love to hear (either here or on the blog) what other people in the industry think about this.

  • 17.
  • At 08:56 PM on 01 Feb 2008,
  • Shawn Carson wrote:

Microsoft is a phenomenon company. This buyout would bring in the much needed consolidation in web space. The combbination of Microsoft and Yahoo Engineers would certainly give Google a scare. As is google's over hyped stock price bubble is on its way to burst

They are chasing the train. And they won't catch it.

Google have snaffled the search market, it is gone. The chances of anyone catching up in the west are tiny. Well, to start off, they would have to come up with a better algorithm, and that is already difficult and perhaps impossible. Even if they would succeed, they would then have to get the market to adopt it. Whole chunks of the net are now built around the way that Google's search algorithm works.

Instead of trying to catch the horse that has bolted, they should (1) fix the gaping holes in their own new product range, which would restore some faith in them from the technical community, and (2) invest and research in fields where their skills and capital might have some impact, and where much work is still to be done, such as virtualisation, security ...

  • 19.
  • At 10:33 PM on 01 Feb 2008,
  • Sinclair ZX81 wrote:

"Microsoft's audacious bid for Yahoo reveals the extent to which the Seattle giant has failed to adapt to the internet age."

Actually it's "the Redmond, WA giant", and while MSN.com is a bit of a failure, Hotmail and MSN Messenger are pretty successful and the new Silverlight stuff looks promising.

They are doing a lot better than Yahoo! which is why its Microsoft trying to buy Yahoo! not the other way round.

  • 20.
  • At 11:34 PM on 01 Feb 2008,
  • Robert F. Tangen wrote:

Please somebody stop this merger. MicroSoft has nothing to offer. I have Apples for a reason. After so many virus attacks and machine lockups, starting and stopping just to keep the thing working I threw my Windows based computers out and bought 3 Apples. If this happens Yahoo will no longer be my Safari home page and I will stop using my Yahoo mail address.

  • 21.
  • At 11:46 PM on 01 Feb 2008,
  • Jose Victor Consuegra wrote:

Although it is true that Google has emerged as the first one in the web search and online ads business, overtaking the instant messaging services of MSN will be hard work.

  • 22.
  • At 12:26 AM on 02 Feb 2008,
  • Nelson wrote:

I never use Yahoo and MSN searches for one simple reason..clutter. They both have too much information and ads and not enough content. I also feel as though I am probably going to get the same results from all of the different search engines but google is much more friendlier on the eye.

Microsoft always seems to be lacking in innovation when it comes to the internet. And that is a dangerous thing to lack these days.

I would like to see microsoft taking a few more risks and thinking about the consumer a bit more.

  • 23.
  • At 06:12 AM on 02 Feb 2008,
  • Dave wrote:

I do like MSN. It seems much less stodgy than both AIM and YIM. Not many people use Google Talk. However, I use Mac so prefer to use something such as Adium meaning Microsoft is making zero advertising revenue from me, plus I don't know how much Microsoft makes in revenue from MSN, I doubt it is hardly significant to what Google makes from YouTube and search.

Microsoft could benefit from this. However, they need to use some of Yahoo's great resources such as Flickr and email. However, it needs to figure out a way to make it profitable. Take a look at YouTube. YouTube is everywhere, embedded in websites, Facebook, MySpace plus it is on devices such as the iPod, iPhone and AppleTV, while using subtle advertising.

  • 24.
  • At 08:50 AM on 02 Feb 2008,
  • Robert G wrote:

Yes, Microsoft has a huge slice of the browser "market", but I'd hardly describe it as "crushing the opposition" when the only reason anyone gets used to using IE is that is is delivered with Windows by default.

One day, one of the many court actions against Microsoft for anti-competitive behaviour is going to result in a worldwide requirement to put another free browser like Firefox or Safari on the default Windows desktop. Then we'll see how IE stacks up in terms of real user preference.

Microsoft's favourite way to sell is via the operating system. If they buy Yahoo, we'll see Yahoo Search (and I predict Yahoo Desktop as a competitor to Google Desktop) built into Windows by default - maybe even replacing the search option on the start menu, and it will become the default first page and search engine for IE. That WILL mean more people use Yahoo, because most users just take what is shoved at them. Never forget just how unfairly MS play this game.

Regardless of whether the microhoo! merger seriously dents google or not, I think it could be a good thing overall for web users.

Serious competition could help the market and if this keeps google on its toes without them able to get away with over-commercialising search, its good for the internet.

Game on!

"But this is about gearing up for the second internet age - an age where commerce, community and communications are dominated by the web."

Absolutely right. But now that most developed nations now have between 68% (UK) and 84% (Canada) of homes with internet access, it might be even more important to point out that it is an age where the web is dominated by commerce, community and communications.

Who owns the web's advertising? Google.

Who owns the web's community? The jury is still out but Myspace is at the top of the list so far I think.

Who owns the web's communications? Probably still Yahoo

So far things are pretty even in terms of potential ownership of the future.

But factor in commerce and you should be looking at the only marketplace where small business can still compete with the big boys on a roughly even playing field.

Microsoft doesn't have the best record as a facilitator of access to even playing fields and that is what Google has to continue to provide by keeping on returning great search results. If they do that, the competition seems unlikely to grab much of their search market share.

Interesting times we are living in!

  • 27.
  • At 12:02 PM on 02 Feb 2008,
  • Jason Reid wrote:

MSN is the of the most widely used instant messaging systems used I thought. Well it is in my circle of friends anyway.

By usage AOL Instant Messenger is the largest, by significant amounts (at least 10 times the users I believe).

Overall I feel this is a bad route for Microsoft to be taking, even if they can get past the regulatory roadblocks they will face with this attempt.

It depends on the country. For ex in Romania most of my friends use Yahoo Messenger but my overall global list of friends contains people with gtalk/jabber msn icq skype and yahoo.

Is it so, that eventually only two large compettitors remain in business and all other small companies die or are swallowed by the big 2 ones. Check the microprocessor manufacturers for example, only Intel and AMD are left (the last one allmost dead)

  • 30.
  • At 03:13 PM on 02 Feb 2008,
  • James wrote:

"From instant messaging ... Microsoft is not out in front in any of these areas."

This is incorrect. Live messenger has the largest (by far) share of IM communications.

  • 31.
  • At 04:05 PM on 02 Feb 2008,
  • Geert Jan van Oldenborgh wrote:

There may also be technical problems, with Yahoo built on linux, FreeBSD and PHP. Microsoft will either have to adapt to those technologies, or reimplement it all in their own way, losing time & staff.

That doesn't automatically mean it's the most popular service.

In the Netherlands MSN is very popular but in Germany for example ICQ is used a lot. I have no one in my ICQ list who's from the Netherlands and all my dutch contacts are on MSN. Most from Asia i know are on Yahoo

  • 33.
  • At 07:07 PM on 02 Feb 2008,
  • Sinclair wrote:

"Microsoft's audacious bid for Yahoo reveals the extent to which the Seattle giant has failed to adapt to the internet age."

Actually it's "the Redmond, WA giant."

  • 34.
  • At 09:19 PM on 02 Feb 2008,
  • Morgan wrote:

@Hugh Cowan: AOL Instant Messenger (AIM) is currently the most popular instant messaging services in the world although Windows Live Messenger is the most popular in the UK. AIM has the largest userbase due to AOL being so popular in America. Yahoo has a few million less providers than WLM.

  • 35.
  • At 10:53 PM on 02 Feb 2008,
  • Geert Jan van Oldenborgh wrote:

There may also be technical problems, with Yahoo built on linux, FreeBSD and PHP. Microsoft will either have to adapt to those technologies, or reimplement it all in their own way, losing time & staff.

To be honest I think that this has been planned for quite some time I just think Microsoft have been waiting for the right opportunity.

I mean when you think about it, when Windows Live Messenger came out, there was some integration with Y! Messenger, which showed quite good relations between the two companies.

In the communication front, Microsoft has a massive advantage over Google, after Google’s failed attempt at a WLM Killer "Google Talk". I remember the first few months of hype, but that soon died out.

I think with the acquisition, there is a chance that Microsoft can use Yahoo's developers to build on their success in communication and I think that it'll probably help drive the revolution of Web 3.0.

Looking at the 'big picture' we can see that there's a fair amount of potential conflict in such a merger between these two behemoths - however, there's also much that MS can gain from a takeover. Yahoo! is a strong brand, but has played second fiddle to google for far too long, in the UK at least.

Their attempt at partnering with BT to increase their UK market share didn't have the desired effect, and Yahoo! are clearly struggling against Google who are even more on the ascendency.

I think there is a clear difference in philosophy between the two "Internet Portals" as they were once known. Google have always been open, and allowed the user to view the 'net' as it was. Their homepage historically has always been very 'empty' (before the days of iGoogle) - whereas Yahoo! wanted to frame the net and view it within a Yahoo! environment, so to speak. This has ultimately backfired, with the generic 'net' far more creative and awesome than any 'branded' net could be.

In such a way, the relative paths of Yahoo! and MS appear to go down the same path. Providing their customers with a quality service - as long as you're a customer you'll reap the benefits. Whereas Google have gone for a more "laissez-faire" approach. They contribute (but don't control) a number of software projects. They donate their time and expertise in the way of the "Google Summer of Code" - which many companies and individuals have benefitted from - yet they can still wrap-up and package competitive SaaS software.

Moving to a different point, the main worry of this merger (should it go ahead) is what would happen to Zimbra. It was recently acquired by Yahoo! possibly to fortify their ageing web-mail interface. As one of the most prominent exchange-challenging mail server suites - I'm quite worried that an MS buyout could see that project severely disabled in the name of "killing competition." If so it would mark Microsoft's first attempt at being able to knock open source development... we shall wait and see.

thnks, interesting article

Microsoft's obsession with its own technology has led to gaps in its product portfolio. Yahoo effectively fills these gaps because they've been succesfully exploiting them for years.

Yahoo has significant mobile presence. Yahoo has IM on non-Microsoft platforms (MSN still has the largest Windows IM presence). Yahoo also has new social-innovations in the form of Flickr. But most notably (though not obvious to us punters), is Yahoo's successful advertising technology.

Advertising revenue is the key to Microsoft's search engine future. We punters are searching all the time although we may not realise it. Every time we visit a page that knows something about us, search engines are working in the background to ensure we see advertising content that is most likely to secure a click from us. A Yahoo acquisition widens revenue possibilities in advertising. So far advertisers have been disappointed by returns from Microsoft Live, while at the same time returns from Yahoo and Google are still stable or growing. But advertisers could be lured back with the possibility of a Microsoft-Yahoo alliance.

There is a sting in the tail of advertising, and this is how we know the dot-com bubble is over. Because advertising is the link to the rest of the economic market, and when the market suffers, so does advertising. And, already this week we have seen disappointing financial results from Google. In the current market confidence is king, and Microsoft, even if they don’t manage to grab a big slice of Google’s advertising revenue, could yet again come out on top.

However, assuming Microsoft do succeed in acquiring Yahoo technologies, it will still be playing catch-up with Google. The good news for Yahoo employees is that this is no acquisition with a view to simply killing off some of the competition. Microsoft need Yahoo and they need to keep Yahoo's customers sweet in the process of acquisition - they cannot risk a mass-migration to Google. They'll be no costly consolidation of engineering, rather they'll be increased concurrency, co-op-etition and finally yes, convergence and re-branding.

  • 40.
  • At 01:21 AM on 04 Feb 2008,
  • JTP wrote:

I am really quite confused by Microsoft's willingness to pay so much for Yahoo. Integrating Yahoo into MSN or Live(or vice versa) will be a massive amount of work and expense(particularly since Yahoo is largely a BSD shop). Even if they pull it off in record time, it is pretty unlikely that the result will even manage to be equal to the sum of its parts, much less greater. They would gain all the Yahoo customers who don't leave; but it seems a terribly high price to pay.

  • 41.
  • At 03:12 AM on 04 Feb 2008,
  • Brian Farrelly wrote:

Hugh, AOL is generally considered the IM market leader, with way more users than MSN, although they're both dwarfed by Skype's user base.

Microsoft + Yahoo would be a disaster for Yahoo and great for Google: MS have consistently shown they have no idea about the web.

  • 42.
  • At 09:16 AM on 04 Feb 2008,
  • Arelle wrote:

If Microsoft take over Google I will use something else for both my email and search engine. I don't like their policies and suspect their agenda. Viva freeware.

  • 43.
  • At 10:27 AM on 04 Feb 2008,
  • catizirto wrote:

With all the finances that MS has it would be put to better use by being involved in the struggling automotive industry. MS had an impact on the way we communicate over the past years and now its time to try something completely different. The auto industry needs a fresh approach from outside it's tomb. mmmm
On the other hand, one dinosaur might not be good mating with another. :)

  • 44.
  • At 03:23 PM on 04 Feb 2008,
  • ArbitraryAntonym wrote:

They are after the customer base, and thats pretty much it. I would expect Yahoo to be morfed into a DRM media gateway, which they will then control with their OS. (Fist-Ya)

The people who should be most concerned are the RIAA and the MPAA, since this could ultimately result in a manopolized proprietary sales channel for their intellectual property. Of course they will be behind the curve, just like they were with MP3, DVD, MPG etc. etc. etc.

Expect a Microsoft music and movie label if this goes through.

Is there any service or application MSN and Yahoo can only do together, but not alone? I think both don't offer enough value to the customers and don't have a working business model. Therefore a merger won't be a successfull move.

  • 46.
  • At 05:01 PM on 04 Feb 2008,
  • Hubert Pereira wrote:


Yes, I do tend to agree that MSN/Hotmail combine has still a large following. With MS teaming up with Yahoo, and combining the whole range of resources, would that not be enough to give it a flying tackle on Google's knees!

Like Bhatia did, the owners of Yahoo cannot hope for a better time to cash in the moolah, especially with the fact that, Yahoo hasn't been going anywhere in the recent past.

Anyway, time will tell.

  • 47.
  • At 05:12 PM on 04 Feb 2008,
  • cindy wrote:

Ok If Microsoft takes over Yahoo What about Yahoo chat will it remain same worst or better .I hear no mention of it anywere . Thank You

  • 48.
  • At 05:23 PM on 04 Feb 2008,
  • Hubert Pereira wrote:

Oh Yes, Yahoo has always capitalized on MS shortcomings, and this is what BG@tes & Team is actually looking for.

The other day I got so tired of Windows (XP) crashing- chucked out the laptop, and bought a desktop for home loaded with Ubunto 7.10, where the coupled browser is Mozilla Firefox with the Google search built-in! So I wonder how far has Google gone into Linux these days.

But I still feel that the empire consisting of Micrsoft / MSN / Hotmail / Yahoo with all its communication tentacles will be a challenge for Google.

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