After we noted that Microsoft (MSFT) might eventually have to buy Yahoo (YHOO)–and why such a transaction would make sense–some readers asked why we thought this would be a “disaster” for Yahoo. Here’s why:
- As long as a Microsoft online division is housed within the Redmond whale, it will always play second-fiddle to the Windows and Office monopolies. Worse, the online strategy for the combined company will always be engineered to help preserve the Windows and Office monopolies. (This is the primary reason Microsoft has failed so miserably online for the past 12 years: internal politics and competing priorities). Google, meanwhile, is hell-bent on destroying the Windows and Office monopolies. For Yahoo (and Microsoft) to challenge Google, therefore, they have to be able to compete with Windows and Office. Microsoft will never let this happen as long as the companies are controlled by the same management team.
- Microsoft sells its Internet division to Yahoo for a major equity stake.
- Microsoft takes several board seats.
- Microsoft shares Windows Live and Office Live technology with YahooMSN, treating it as a distribution partner (perhaps in exchange for more equity).
- Microsoft allows Yahoo/MSN to develop and implement its own strategy, even if this means competing with the core Windows and Office monopolies.
This would create a new, larger company with more clout with which to compete against Google. It would create a separate currency with which to attract and retain employees and make acquisitions. It would give the company the freedom to do what it needs to do. And, most importantly, it would benefit Microsoft shareholders, who would own both the Windows and Office monopolies (should these remain strong for decades) AND a major equity stake in the online company.
Chance that Microsoft ever seriously considers this option? 0.0004%
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