Microsoft’s Purchase of Yahoo: An Effort to Remain Relevant

My takeaway from business strategy class was that even the best planned mergers and acquisitions usually fail. Redundancy or resources, overlap of product, and personnel/culture clashes are usually key to the failure of any M&A, and this deal has an abundance of each issue. I think Microsoft’s bid to purchase Yahoo! is not well planned at all, and is almost guaranteed to fail, but not for the same reasons many other critics think.

This deal signals desperation in the management of both Yahoo and Microsoft. Yahoo has been steadily losing market share to rival Google. And with continued innovative services and the G-phone looming in the future, the death rattle of Yahoo is only a matter of time. Microsoft is probably the only company with the assets to bail Yahoo out. But just because you can do something doesn’t necessarily mean you should.

From the Microsoft perspective, Yahoo’s misfortune is a gift from heaven. Microsoft management has apparently been looking at the global marketplace through the rose-colored glasses of its own marketing machine and completely lost track of reality. Focusing heavily on its software suite, Microsoft has missed the continued evolution of the internet and the convergence of technologies it is creating. Microsoft products are not stable, are not reliable, and consume massive amounts or processing. Add to this exorbitant licensing fees and a licensing strategy that has been compared to “entrapment” by some foreign courts (Taiwan, for example), consumers have been searching for alternative products.

Open source software has been a popular option for much of the world outside the US. But Google became a threat to Microsoft’s “cash cow” of software sales when it began to offer a free online alternative to some of Microsoft’s most popular products: Outlook, Word, Excel, etc.

The truth is, Microsoft got lazy and now it is struggling to remain relevant. Microsoft did not pay attention to its online business (MSN), allowing Google to run circles around it. Dominating the online world and understanding (or spearheading) the move to “Web 2.0″ Google is now threatening Microsoft in a way that they can’t really respond to. This isn’t a battle over price… it’s a battle over the hearts and minds of the consumers. Microsoft is grasping at straws in its bid to take over Yahoo, trying to erode Google’s revenue base. I believe they are too late. At this point, Microsoft has so much more to lose than Google. Going toe-to-toe, Microsoft will at best get hurt more than it can hurt Google.