Another reason Microsoft should give up on Yahoo: Morale

Companies (at least publicly traded ones) are beholden to shareholders. But they also are beholden to their employees. And while most Softies are afraid to state for the record that they think Microsoft should abandon its takeover of Yahoo, that opinion is a real and prevailing sentiment among many in the Microsoft ranks.

These aren't folks who are saying Microsoft should walk away from Yahoo so that Yahoo's stock price will tank and Microsoft can swoop in and buy them later. They are folks who are opposed to a Microsoft takeover of Yahoo at any price. And while it's tough to take over successfully a company where many of the employees don't want to work for you, it's potentially far worse to alienate your own employees by spending billions to buy technology and people with whom your rank and file have no interest in working.

The Wall Street Journal is hearing dissent among the Microsoft management ranks about the Yahoo merger:

"Still, Mr. Ballmer faces opposition to the deal in his own ranks: Executives at several Microsoft divisions oppose the bid on grounds it will divert needed resources and attention from other challenges the company faces, said people familiar with the company. That sentiment is heightened as Microsoft heads into its annual budgeting season, said people familiar with the company."

I'm hearing it, too, among some of the Microsoft rank and file. Of course, no one wants to be on the record opposing a deal championed by Microsoft CEO Steve Ballmer, Platforms & Services Chief Kevin Johnson and Chief Financial Officer Chris Liddell; that would be career suicide. But here's one take from an insider who asked to remain anonymous:

"'Yahoo is a great thing for the search team'" is the BS line that upper management apparently continues to send. Generally, people just accept it as likely coming, but a lot don't expect it to impact anything materially for at least a year. Think the EU is going to let this go easily, if at all? It will take forever in regulatory approvals."

Another anonymous vote of no confidence:

"No one wants it (the Microsoft-Yahoo merger) to happen. The only reason it's being considered is that the management of Windows Live has been so ineffective that they can't ship anything worth using. They are consistently behind what consumers want, and unlike the old Microsoft, they are so poorly managed that they can't even copy everyone else. "

Are Softies fighting the Yahoo merger because they fear they might lose their jobs? Doubtful, as there are many open slots in Microsoft's online services business right now. If anyone is at risk of being cut, it's more likely the Yahoos.

That said, not everyone at Microsoft is anti-MicroHoo. Some Microsoft folks are counting on moving to Yahoo if the deal is consumated. As one commentor (who may or may not actually work for Microsoft) noted in a recent post to the Mini-Microsoft blog:

"To the question on why Microsoft employees in the valley like the Yahoo deal:

Most of us work either in the TV division or MSN -- both of which are complete f-ing disasters. Microsoft should have lit off a neutron bomb here a long time ago -- but that would require management skills.

"I work in the TV division (completely f--ked up with evil and corrupt management and 11 YEARS of red ink), and I for one will be shifting to a Yahoo group on day 1 after the acquisition.

"I know that at least 10 of my work friends have the same plan. It is our escape plan if something in the valley doesn't look more interesting first.

"Therefore, we like the deal."

There's been lots of back and forth about Microsoft and Ballmer being at risk of "losing face" if Microsoft gives up on its Yahoo acquisition plan. I feel as though there's nothing embarrassing about admitting your original idea was ill-advised, and after three months, you've realized you could better spend your billions elsewhere.

In fact, if I were Microsoft, I'd be using a good part of that $40-odd billion to hire a SWAT team to help Windows Vista. I'm not talking about hiring more developers; I'm talking about finding folks who could creatively find a way to market downgrades to XP as a selling point. Microsoft should be far more worried about its Vista image problem than about outsmarting Yahoo, at this point.

Remember: Windows still generates one-third of Microsoft's sales and two-thirds of its profits. Online Services is still a black hole. If Microsoft's cash cows dry up prematurely, there won't be any services future for the company to worry about.