Monetizing free software is important, but...

Microsoft's recent bid for Yahoo, to the tune of $44.6 billion (now rejected by Yahoo's board on account of it, supposedly, "undervaluing the company)," is a sure sign of the economic might of the Microsoft corporation. Few companies in the world could afford to make such a bid, and if it goes through, would rank up there as a true mega-merger.

To my mind, the real reason Microsoft is going after Yahoo is not for its Internet properties - which are substantial - but for its advertising network. Built partly around the 2nd place status of Yahoo's search engine, it is an important asset in a world looking for ways to monetize essentially free software services. If the fatal flaw of the boom-90s was a failure to make profit from a free (as in cost) Internet, the solution was the ad revenue Google demonstrated could turn your company into the Internet's $160 billion success story (and in record time to boot).

Microsoft, looking forward to a world where more and more software and services will be offered for free (and even, in my opinion, another way to compete with free - as in cost - open source products), considers the ability to monetize those free services to be rather important. In that light, the Yahoo bid makes a lot of sense, as ownership of the means by which people make revenue from software services is critical for a company who plans to remain at the software crossroads for the forseeable future. So, even though I have - twice - expressed my doubts about the deal, that is in no small part due to the cost and scale of the undertaking. Though I still wonder if its possible to merge the two companies, I do understand at least why Ballmer and company would be interested in trying it.

Though envisioning the future is clearly an important part of the strategizing that goes on at the executive level, I do wish that more thought would be put into something more fundamental. Every company has a core identity that made them the company they are today. In that light, what is Microsoft's core identity? What makes Microsoft products unique? As yet another rephrasing of the same question: what is it that Microsoft does very well? These are important questions for a company expanding into as many software categories as modern-day Microsoft, never mind a planned multi-billion merger between two companies with corporate cultures likely to be as different as fans of Unix and Windows.

I'll post my opinion of the answer to those questions tomorrow (or the day after), but for now, I look forward to hearing what readers have to say.