Microsoft/Yahoo – Don’t Forget the Customer

The proposed take over of Yahoo by Microsoft is a fascinating intersection of marketing, technology and advertising, with Microsoft motivated by its inability to compete with Google in search and online advertising.  If I were in Steve Ballmer’s shoes I would probably do the same thing, but this strategy is a classic example of fighting the last war.

Mergers in the tech world never seem to work out for a variety of reasons, but mostly because they forget about the customer or take them for granted.  These deals always sound good in the conference room where insulated executives pitch each other on stories of efficiency and synergy.  They think that one plus one never equals three, in some cases such as TimeWarner/AOL – one plus one equaled .75.

Trying to merge cultures, technologies, people and rivalries is always a mess, and the needs of and desires of customers always take a back seat.  It is always assumed that if “Joe” is a customer of Company B, and it is bought by Company A, then “Joe” naturally becomes a customer of Company A.  This is faulty logic – our man Joe has no relationship or loyalty to the new company, and may not even like them (remember the HP/Compaq merger).  The market has already selected Google as the de facto search standard by a huge margin.  Why they would think that combing the second and third place search engines would get people to switch.  The wisdom of crowds has spoken and it is not talking about the MSN network.

I have always been a big fan and heavy user of Yahoo’s content and email, but frankly, their search is not nearly as good as Google’s.  I have started the day with my customized myYahoo page and used their email service forever.  However, if a Microsoft-owned Yahoo tries to convert me to a Hotmail account, I am gone, and so will others who don’t want an email address that looks like it comes from an adult site.

Microsoft has to be very nervous about Google’s success and plans for the future.  According to the New York Times, MS is heavily dependent on sales of operating systems and Office (Word, Excel, PowerPoint and Outlook) for profitability.  In the last quarter alone their operating profit from Office was $3.2 billion on $4.8 billion in sales.  That is literately printing money and a business model they need to defend.

It is hard to imagine a time when corporate America won’t be using MS Office, but fast forward 10-12 years.  Do you really think we will all still be using packaged software that costs $400 a pop, or will we be using some sort of Software as a Service (SaaS) or ASP model?  Check out Google Docs and you can see they are moving in this direction.  That thought has to scare the heck out of Microsoft.  Not to mention mobile computing and other platforms where they are lagging behind.

Technology is a cruel business, where one moment you are the hot new thing, the king of the hill, and a minute later you are yesterday’s news.  Google will not be toppled by the combination of Microsoft and Yahoo.  However, one day they will likely be knocked off the mountain by a group of brilliant kids who get their start in a garage.