Can Microsoft and Yahoo Do More Than Sell Ads? The SMB Opportunity

Can Microsoft/Yahoo beat Google? It could happen, in at least one highly strategic corner of the software and services market. While much of the focus on Google versus Microsoft has looked at the market in terms of Google's dominance in search, I'm of the opinion that Google is a media/advertising company that is often mistaken for a technology company -- though there's lot of technology under the hood at Google, the revenue stream is all about advertising dollars, which represents, in my mind, something more akin to the world's second oldest profession than anything 21st century and innovative.

Having said that, I think Yahoo and Microsoft might actually have a few things to bring to the competition with Google that are outside the commonly cited advertising and search worlds. In particular I'm seeing a lot of opportunity for cloud computing directed at the small to medium business user, and in that regard there might be something in Microsoft/Yahoo that should give Google a little indigestion, if not a genuine run for its money.

Yahoo has for years tried to make it in the SMB space, and courted a number of vendors in the process, among them SAP, which danced several times around the ballroom with Yahoo about creating strategic offerings for SMBs. The problems were manifold, among them were the problems that SAP had in dealing the SMB market and the problems that Yahoo had in dealing with the whole notion of enterprise software. There were press releases and not a small amount of meetings, but nothing really ever came of the deal.

But the seeds were sewn for a bigger bid for Yahoo in SMB, and they continued to try to offer cloud-based services, but with no real chops in the SMB space, the emphasis on SMB didn't really make that much of a difference for Yahoo.

Over at Microsoft, an equal and opposite disconnect was happening. Microsoft was always good at the SMB market, and has been building a portfolio of cloud-based services around Office that, at least on paper, look pretty interesting. Its growing portfolio of Dynamics applications were also growing more online-aware, and in my opinion it's not a coincidence that Microsoft moved the exec in charge of Dynamics over to its then newly-created search division.

But Microsoft's success in the online business model that Yahoo and Google have pioneered has languished behind the vision, and that brings us to today's announcement. Okay, search and ad revenues are big business, but making the online world safe for small and mid-sized businesses could be even bigger. Especially when you consider the extreme strategic deficit that Google will now face in trying to combat a Yahoo-like cloud environment infused with Microsoft's enterprise and business user software, aided and abetted by what is arguably the best SMB channel partner base in the industry.

Will this push to the SMB market be enough to push Microsoft/Yahoo out in front of Google? As long as ad revenues are what Google does best, there's a fighting chance that Google will be vulnerable to a Microsoft/Yahoo assault on the SMB market. Right now I see no reason to believe that Google understands enterprise software, or the needs of small and mid-sized businesses, which number in the tens of millions worldwide. Assuming Microsoft can blend Yahoo's technology and culture quickly and successfully (which was not the case when it bought Great Plains and Navision and started it slow march towards the enterprise software market), it could give Google a real run for its money. At which point we'll see whether ad revenues are enough to keep Google on top. Either way, Microsoft/Yahoo vs. Google should be a fun one to watch for some time to come.