...which really isn't an apt title, as something has to begin for it to end. However, it certainly looks like a merger between Yahoo and Microsoft is unlikely to materialize. This is sure to disappoint Icahn, whose interest in the deal I always viewed with skepticism. He's good at making money, but the interests of short-term profit from sale of stock aren't always in line with long-term growth.
My big issue with the proposed merger was that I couldn't figure out how Microsoft was supposed to take a sinking search-related software giant, add it to their own small search share, and result in something that would make $43 billion seem like a good way to spend Microsoft's money. Like I've said before, I understand why Microsoft would want to boost market share for its ad platform (the real motivation for the Yahoo deal), as ad platforms are likely to be more important in an Internet world where many services are offered to customers for free, monetized by ads.
My concerns were both practical - would a merger with Yahoo really boost Microsoft's search share enough to pose credible competition to Google - and cultural - would it be possible to merge Yahoo's 16,000 employees into Microsoft. On the latter point, I think it would have served as a huge distraction from the real work necessary to counter Google's advertising heft, which currently emphasizes too much the need to pose a frontal assault on Google's dominance in Internet search.
I think a better way to counter Google is to use what I'll call in this blog the "Hannibal" maneuver. No, I'm not speaking of THAT Hannibal, though a solution which involved the entire Microsoft Silicon Valley campus walking over to Google headquarters and eating everyone they find there would certainly be twisted (Google does feed its employees well in its free five-star cafeterias, so I'm not saying they wouldn't be tasty). Rather, I am speaking of Hannibal the famous Carthaginian general, who beat the more numerous Romans at Cannae, not by mounting a frontal assault, but by flanking in such a way that they could attack from the unprotected sides.
That has been the recipe for Apple's surge in desktop computers. Granted, it helps that Jobs whipped the desktop division into competitive shape, pushing to replace the aging Mac OS core with plumbing carried over from his NEXT OS days while reinvigorating the design skills that had made Apple products so popular in the first place. From candy-colored iMacs through iPhone v2.0, Jobs return to the helm of the company he founded is a testament to the power of good ideas backed by powerful ideologues (a power which Jobs, as a founder, naturally has).
However, the real boost to Apple on the desktop was their success in music players. That isn't to diminish the number of things Apple did right along the way (great store concept, positioning themselves as "fashionable" Information Technology), which to my mind constitute the individual ingredients in the recipe, but the halo effect is very real. A popular "side" business, in other words, was what it took to make people look past small market share in the core desktop computer space.
Google all but owns Internet search these days, and though Microsoft certainly has the resources to mount a frontal assault against them (and I'm not saying Microsoft shouldn't figure out search), that's a lot harder to do than growing a segment in which Google might not be quite as strong, and plugging your own ad platform into it.
It clearly wasn't Google's original plan to "challenge" Microsoft. However, by growing their share of a market to which Microsoft paid no attention (a "side" business, as it were), they ballooned to a size where they could actively challenge Microsoft in a number of areas, using their dominance in search - and the Interent advertising advantage it gave them - as an island of safety from which to launch new initiatives that, along the way, challenged Microsoft.
I can think of LOTS of areas that Microsoft could successfully grow as a means to give its ad platforms leverage. Search is merely one way to target ads, albeit a particularly important one for the Internet. There are LOTS of ways to target ads, though, and Microsoft has businesses in most of them.
The strategic response is, in other words, all about the software...because that is the kind of company Microsoft is.
Microsoft, in trying to counter Google search dominance, is fighting the battle under the hardest possible terms when they go head to head in search (though, again, it's still worth doing, if nothing else but for the lessons learned). Far easier would be to surge in areas where Google is weakest. Given the breadth of Microsoft product catalog, opportunities would seem abundant.
The issue, of course, is whether Microsoft can grow those divisions strong enough to become serious ad-based counterbalances in their own right. Whether or not Microsoft can do that, however, is all about the software. If they make the right kinds of software, it can happen.
Apple came from essentially nowhere to define the digital music playback space, and Google did the same in Search. Microsoft can do the same, provided they have their innovation house in order.
This is where Microsoft should be concentrating their energies, not distracting themselves with debt and the need to absorb 16,000 new employees.
Just my opinion, of course, and not one that I will work hard to impress on anyone important, as the deal seems to have collapsed on its own.