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Microsoft’s $44.6 billion bid for Yahoo Feb. 1 is clearly a push by Microsoft for a greater share of the online advertising market dominated by Google.
That said there also are implications for enterprise applications users as well. And those too come back to Google.
Microsoft has for some time been trying to make inroads into on-demand computing for business users, first with its Office Live initiative-essentially a set of online services for small businesses-and most recently with its Dynamics CRM 4.0 release in December that provides on-demand, multi-tenant CRM (customer relationship management) software.
While CRM 4.0 is not quite in the same ballpark as Office Live, it’s all based on the same concept: computing in the cloud, or in Microsoft’s parlance, software-plus-services. What Yahoo brings to the table, through its $350 million Zimbra acquisition in December, is a set of online Office-type applications-e-mail, calendar, documents, VOIP (voice over IP) -that could help Microsoft compete with Google Apps, not only with the applications themselves, but also with the engineering talent.
“Clearly [Microsoft] stated this deal is about search and advertising and a lot of the dollars are there today, but we have to keep in mind that Google is changing the game around business applications,” said Forrester Research analyst Rob Koplowitz. “Yahoo could bring some very interesting assets to Microsoft’s software-plus-services [strategy]. It has lots of consumers that could be business users and lots of data center savvy, so there could well be an enterprise part of this deal as well.”
Yahoo has 500 million live users that could be, if nothing else, eyeballs looking at a new class of Microsoft online business applications. And the timing couldn’t be any better, according to AMR analyst Jim Murphy.
“The reason why it’s kind of urgent that Microsoft address this now is the hesitation a lot of companies have now to upgrade to Vista. … With companies coming out with budgets, Microsoft obviously still wants to strongly motivate people to move forward and they can’t let Google get a step forward,” Murphy said. “That’s the most direct impact on the enterprise.”
Yahoo still most trafficked site on Internet
Despite declining revenues, Yahoo is still the most trafficked site on the Internet. Couple that with the impact of the consumer Web on the enterprise-which is largely responsible for the Web 2.0 phenomenon-and Microsoft could dramatically increase its “cloud computing” footprint by offering its enterprise services in the Yahoo environment.
“Look at Yahoo’s business user of consumer-based enterprises, especially financial services, where they all have Yahoo home pages,” Murphy said. “There could be more impact as Microsoft offers services or software via advertising.”
But the marriage between the two companies would not be all smooth sailing. Nick Patience, an analyst with The 451 Group, said in a statement that Yahoo has tried and failed in the past to sell enterprise software through its September acquisition of Zimbra.
“…So it shouldn’t affect that side of Microsoft’s business, with two possible exceptions. Firstly, Microsoft will have to decide what to do with Zimbra; our guess is that it will let it whither and die, rather than spin it off and leave it as a threat to Exchange. Secondly, it will potentially have an effect on Microsoft’s still-nascent move into line productivity apps. Note that Webmail aside, Yahoo hasn’t tried to get into this business,” Patience said in the statement.
In a call with press and analysts Feb. 1, Microsoft CEO Steve Ballmer hinted at the impact to Web computing for businesses.
“We have great respect for Yahoo and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market,” Ballmer said. “We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners.”
Microsoft officials said during the call that it would offer serious retention packages to Yahoo’s engineering staff.