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.”
New York vs. Silicon Valley
Blodget said he started Silicon Alley Insider because “we felt like there was a community here that didn’t really have a publication that was the voice.”
He said he does not agree that, as New York Magazine writer John Heilemann said, New York is a “‘a sad-assed tech backwater,’ but everyone in the [Silicon] Valley thinks that way. But there are two main differences. In the Valley there is this tremendous population of people who have grown up knowing people who have made untold hundreds of millions of dollars. Here we have one generation. We have a couple of big companies like DoubleClick and AOL that are spinning off lots of experienced people, but we do have a ways to go in terms of catching up.”
Blodget said New York has more competition for the best minds that are perhaps even more attracted to Wall Street, the media industry and the advertising industry, which “are big competition for small startups that are strapped for cash. And it’s tough to go to somebody who has just graduated and is already making $140,000 and say ‘come join this really exciting startup where we’re going to pay you a third of that and you’re going to get some paper that may end up worthless if it doesn’t work.'”
Another thing about New York, Blodget said, is you get punished for failure here a lot more than you do in the Valley, where you can try a startup and if it doesn’t work you can come back in three years and try again.
“Here if you fail and you go back to Morgan Stanley and tell them you failed, you have to spend days trying to explain how you’d ever been so insane to go off and do a startup,” he said.
Meanwhile, asked what New York has to do to attract more developers, Blodget said there already is a lot of developer talent in New York. “But again, it’s Wall Street, where you can make $300,000 versus $70,000” elsewhere, he said.
Yet, New York has just had its first generation of big technology companies like DoubleClick and AOL “and some of those guys coming out of there will start companies and I just think it’s just a matter of time. So we’ll get there.”