By now, the regulatory, cultural, practical and financial problems in Microsoft's Yahoo acquisition have been well aired. Let's skip forward to 2009, when they've all been solved and Yahoo is now a Microsoft brand.
Microsoft is now by far the biggest destination on the net. In search, it lags Google by miles. In page views, unique users and attention — how advertisers measure the impact of a site on an audience — it's way ahead, doing more than twice as well as second-placed MySpace. In display advertising, it is untouchable.
It's now that Microsoft's strategy becomes clear. Neither it nor Yahoo has been stellar in innovating online of late, and their combined force is showing no signs of changing that. But now, it doesn't have to.Microsoft is now home to the largest community on the net. Moreover, it has the tools to deliver that community to anyone. In a simple extension to the online hosting service it has been offering via Live, it has set itself up as the ideal place for online companies to start and thrive. Join us, it says, and we'll sort out the traffic. We'll sort out the hosting. We'll sort out the search-engine visibility, the advertising, the hundred things you'd have to worry about otherwise. You get on with building your bright new idea. Welcome to the family. It's Adwords and AdSense, but tied much more tightly to a managed community.
For anyone who's had to set up an online presence with commercial pretensions, such an offer is irresistible. In effect, Microsoft has a critical mass of online users and the technologies to manage them as consumers and creators. You don't have to worry about the rest of the net, although of course they'll come along too when you start to succeed. There's enough here. All you have to do is join.
Microsoft might not have native web savvy but it knows how to extract profit from a dominant position. By creating a community of new businesses, reliant on Microsoft's traffic driving, technologies and services, it can only strengthen its audience of users, creating new dependencies and reinvigorating the lock-in model it knows and loves so well.
There are obvious risks for Microsoft should it fail, but there are wider risks for everyone else if it succeeds. The idea of Microsoft having the same domination of web traffic as it has enjoyed on the desktop is a dystopian vision that is frighteningly easy to conjure up. However, regulators in Europe and the US have learned that its harder to break a monopoly when it's formed than prevent one from arising in the first place. Open standards, open interfaces, open access must be a precondition for the merger. Allowing Microsoft to monopolise a market once is careless, twice is unforgivable.
Talkback
"Neither it nor Yahoo has been stellar in innovating online of late, and their combined force is showing no signs of changing that. But now, it doesn't have to."
If this is Microsoft’s attitude then they’re in for a big shock. Yes they’ll have the biggest audience online, but over time, that audience is worthless if you don’t give them a reason to keep returning.
Unlike their desktop offerings, Microsoft can’t tie online users to its services and for every service they offer, there's an alternative.
In a similar scenario; before Myspace, Friendster was the leading Social Network, as soon as myspace offered something attractive, everybody forgot about Friendster. In recent times, that cycle looks like repeating itself with Facebook now putting Myspace on the back foot.
Google relies on its search algorithm and ad software to maintain its position. They keep innovating because they know an audience can fizzle quickly if something better came along.
It's not hard to see that Microsoft in buying Yahoo sees a way to become the de facto only major portal to the Internet.
Now if you can only explain why the EC and other regulatory bodies will let a company with Microsoft's position (and history) of being on the wrong side of far too many anti-trust decisions will approve Microsoft's gaining a monopoly position like this.