Web Pundit: Microsoft/Yahoo a Disaster

NEW YORK—Internet pundit Henry Blodget called the proposed Microsoft acquisition of Yahoo a "disaster" in the making.

At a meeting of the New York Software Industry Association on Feb. 11, Blodget panned Microsoft's focus on Yahoo, saying that should the $44.6 billion deal go through, "it's going to be a disaster."

Blodget, who is CEO, co-founder and editor in chief of Silicon Alley Insider, a news site focused on the New York digital business community, said that Microsoft CEO Steve Ballmer "is not used to losing. They're doing something that's conceptually smart, but that's not going to work."

Although rumors and chatter about a possible Microsoft/Yahoo union have been around for more than a year, it was Blodget who last November pointed out that the only way Microsoft could meet its online ad goals was to acquire Yahoo.

"In 1995, when they [Microsoft] announced they were going into the Internet, everybody said AOL is dead," he said. But, with the exception of having hastened the demise of Netscape, Microsoft has "been a distant third" in the Internet space, he said.

Speaking about Microsoft's early-morning announcement Feb. 1 that it wanted to buy Yahoo, Blodget said: "It was an incredible gold mine to wake up and find their press release."

Yet the move was not a surprise to Blodget, who said it was "capitalized by the fact that Yahoo has run itself into the ground over the past couple of years. [Also], you couldn't have four big Internet players, with Microsoft, Yahoo, Google and AOL. There had to be some sort of consolidation."

Meanwhile, he suggested that‑should the deal go through‑Microsoft should take on the Yahoo brand for its services and ad-related offerings.

"Microsoft would be insane to pay $50 billion for Yahoo and replace the Yahoo brand with MSN or whatever," Blodget said. "They should replace their brand under Yahoo. Hopefully they'll be smart about how to combine the products. It'd be smart to put everything under Yahoo because it's a great brand."

In addition, despite the obvious attraction of acquiring Yahoo to compete with Google on the online advertising front, Blodget said Microsoft is perhaps even more threatened by Google's clout in the cloud computing arena.

"I think that is the area where they are actually threatened," he said. "I think Steve is smart to see the concept of that threat. It really is a different business. It's not just this whole cloud computing thing that Google made up and the market made up ... It's real.

"With Google Apps, we've existed as a company for over six months and we have not bought an Office or a Windows license. That would have been unthinkable three years ago. And here we are subsisting just fine. And I think you're going to see a lot more businesses do that. So that's what I think the threat is."