February 1st, 2008

Microsoft-Yahoo: Putting the moving parts together

Posted by Larry Dignan @ 8:59 am

Categories: General, Google, Microsoft, Search, Web Technology, Yahoo

Tags: Yahoo! Inc., Microsoft Corp., Data Centers, Utility Computing, It Management, Network Technology, Storage, Hardware, Data Management, It service Management

Microsoft’s $44.6 billion bid for Yahoo looks pretty compelling on paper. The deal even makes for a nice PowerPoint slide on synergies, but putting these two behemoths together could be difficult. Why? There’s a lot of overlap.

First let’s get the slides out of the way. On Microsoft’s conference call executives dished out the following synergies (worth a low $1 billion in savings).

Exhibit A: The Value creation

Exhibit B: The combined assets

It all looks wonderful doesn’t it? Now sit back and pick through the assets of these two companies. How long will an integration take? And how much time will that give Google to widen its lead? Here’s a look at some of the key parts and some thoughts on how they may come together in a possible Microsoft-Yahoo combination (Techmeme).

The brands: For the most part, the Yahoo and MSN brands will remain separate. That’s the best move and the one that won’t annoy users. So far so good.

The culture: There may a few cultural hurdles, but I think much of the worry is misplaced. Why? You can make a nice career hopping between Google, Yahoo and Microsoft. A lot of Yahoo managers probably have worked at Microsoft and vice versa. For instance, Gary Flake a technical director in charge of the vision for the MSN portal and search at Microsoft was the founder of Yahoo Research Labs.

The data centers: Both Yahoo and Microsoft have been talking up grid computing infrastructures and investing heavily in the data centers that would support these things. It’s likely that these things will continue. What’s unclear is what type of architecture will win out. When Yahoo reported its fourth quarter earnings president Sue Decker said:

“On the back end we have made a major investment in open source development of grid computing which provides a substantially greater scalability at fast iteration on core technologies. This is already dramatically impacting our competitiveness in algorithmic search and advertising.”

If Microsoft seals the deal you’ll have a nice internal open source tug of war.

The ad systems: Yahoo has Panama and also has companies like Blue Lithium and Right Media in its network. Microsoft has Adcenter and aQuantive. These systems will have to be rationalized. Will that IT heavy lifting impact advertiser relations?

Email products: The combined company will have Hotmail, Outlook, Zimbra and Yahoo Mail. Initially these things will continue to operate separately but in the long run these products will blend together. Could Zimbra wind up in some Microsoft Live offering?

Search technology: Yahoo and Microsoft have both spent heavily in the search arms race only to play second and third fiddle to Google. These various search technologies–including Microsoft’s recent purchase of FAST–will ultimately morph together. On the upside, enterprise search could benefit as these tools are combined.

Cross property integration: It would be a missed opportunity of properties like Flickr weren’t connected to MSN. Ultimately, though there will be some hard decisions to make and some services that are decommissioned. What will happen to Maps, job listings and the like? How about mobile applications?

Update: Hitwise has posted more on the cross property integration items. Hitwise also has compiled a handy chart on the overlap.