Microhoo!: The Worst Deal of the Internet Age

By Clint Boulton  |  Posted 2008-02-02 Print this article Print


Microsoft's decision to shell out $44.6 billion for a company worth less than half that much is a mistake that can only crumble the software giant's fortress.

In making such a bid, Microsoft is telling the world that it can't make its way in this rapidly evolving market for Internet-based software and that its software-plus-services model is not coalescing the way it hoped.

So, we now know that Microsoft lacks the wherewithal to grow its online software business organically, despite spending more than $7 billion in its Online Services Business in acquisitions and data center investments.

Here is the problem: Microsoft has targeted a company that is in ruins. Yahoo's search is strong, and its mobile ad push is ahead of its time, but Yahoo is a company in freefall from a damaged brand and is woefully unsure of what direction it should turn. Yahoo's current position makes last year's Peanut Butter Manifesto look not only prescient but understated.

Let's say Microsoft does get Yahoo. Then you've got two entities that have no real strength monetizing the Internet, the battlefield where Google has proven itself. Google has its fingers in a lot of pies, but what's been amazing to me is how it hasn't overplayed its hand (yet) by trying to do too many things.

Despite the Q4 blip, the search giant has managed to broaden its sphere of influence and still make money. Once the social networking ad stuff gets properly handled, Google's bottom line will only look sweeter.

If Google starts selling a mobile phone, you could have an alternative to Apple's iPhone with superior mobile application services, paving the way for Google to lead in mobile ads.

My advice to Google is to attack now. Assuming Yahoo shareholders and antitrust regulators approve the deal, Microsoft will have to juggle the various bits of Yahoo and try not to drop the balls.

Google should capitalize by taking its ad business, or as my colleague Joe Wilcox points out, the multichannel ad business comprising video, mobile, TV and other ad avenues, into overdrive. 

Even if Microsoft rationalizes the search, Web mail, and overlapping assets such as the open-source Zimbra software properly (there are so many other areas of overlap, but disparate code bases), it still has to figure out a way to capitalize on those assets through advertising and push those services into the cloud and hope that people pick them up.

There are far too many risks associated with this goal, which is why this could be the most disastrous acquisition since HP agreed to acquire Compaq. In a way, it's a little sad.

There aren't too many ways to attack CEO Steve Ballmer's resume, but failure to succeed with Yahoo will shatter Ballmer's reputation and see him do the same walk of shame HP's Carly Fiorina took almost three years ago.

Microsoft's blood is in the water. Does Google smell it?

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