KEY POINTS:
It's ironic that firm news of a massive
US$44.6 billion offer by Microsoft for Yahoo comes as Microsoft's Windows Vista operating system reaches its first birthday.
Vista represents Microsoft's core business, the operating system, a business that stumbled last year when Vista arrived to stinging criticism from users, many of whom still choose to remain on Windows XP. Yahoo represents what Microsoft aspires to be in the webspace - innovative, popular, broad-ranging. Its interest in Yahoo is an acknowledgement that its own suite of online services isn't delivering.
But it hasn't been a smooth run for Yahoo either. As pioneering as the company has been, it let Google strip its web dominance and has since done very little to claw its way back. There's more on that here.
You can bet that one of the busiest people at Microsoft at the moment is Microsoft chief financial officer and New Zealander Chris Liddell. This will be the biggest financial transaction Liddell has ever dealt with in his life - the proposed purchase price alone is worth around half of New Zealand's GDP!
I've voiced my concern before at the level of consolidation happening in the tech sector, and this is one of the biggest concentrations of assets and ideas the sector has been faced with in years. I think many will be worried about that and dubious about the compatibility of the Yahoo and Microsoft cultures.
Then there are practical matters to consider. The two companies have hugely overlapping offerings - there's Yahoo Mail and Hotmail, Yahoo Messenger and Windows Live Messenger, just to start with. Here in New Zealand , Telecom untied a joint venture with Microsoft only to sign up with Yahoo last year. Now it could find itself back in the Microsoft camp. The two companies have different search and advertising products - merging them will be challenging in more ways than one.
Yahoo and Microsoft both have media tie-ups all over the world. What are the competitive implications of this? Huge, I should think. Regulators the world over will be looking closely at this, particularly in Europe where the EU has a penchant for anti-trust cases and has tangled with Microsoft before.
Then there's Google. I've abandoned the web offerings of both Yahoo and Microsoft in favour of Google's suite of services - Gmail and Google Talk through to Blogger, Picasa and Google Docs. Windows Live rarely gets my attention, I seldom visit Yahoo. The question really is what can Microsoft do with Yahoo's suite of services to revive its own online dreams and get its operating system business back on track?
There would be some positive spin-offs - convenience for web users through things like OpenID, which Yahoo recently threw its support behind and enables single sign-on access to thousands of websites. A tie-up between Microsoft and Yahoo would almost definitely see the companies support the same authentication systems allowing easier access for hundreds of million users.
Overall though, Microsoft spending such a vast sum for Yahoo has shades of the ill-fated AOL-TimeWarner merger. I frankly think that Yahoo and Microsoft need to do something to turn around their ailing internet advertising businesses independently of each other. Surely there are some new, emerging players, the Googles of tomorrow, in the entirely of Silicon Valley or the world, that Microsoft can lavish its billions on.
At its best, a Microsoft-tie-up better tie the traditional desktop operating system to the internet and make web services more convenient to use for millions of people.
At its worst, it could critically damage two bastions of the tech sector and play right into Google's hands. It's a serious gamble either way.
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Microsoft chief executive Steve Ballmer's email to staff about the Yahoo bid.
