[The Microsoft-Yahoo merger is big news in our little web and search analytics world – just as it is everywhere else. I decided to jot down some thoughts on Microsoft as a company and how they might re-direct their online efforts post acquisition. I wouldn’t have bothered for a topic so well covered except that I felt our perspective from Semphonic’s perch is at least a little different than most others.]
A long time ago, Tracy Kidder wrote a remarkable book (‘The Soul of a New Machine’) about the creation of the Data General’s first 32-bit mini-computer. The book is worth reading even if you aren’t in the ½ of one percent of the population who still knows what a 32 bit mini-computer was. It’s worth reading because Kidder spent a year with the engineers, programmers, designers, testers and managers who initiated the program and saw it through to a remarkably successful conclusion. Kidder captures the people and the project in a compelling story that added more to my understanding of how technology is born than any book I’ve ever read.
I learned two things reading The Soul of a New Machine. First, I learned that the real soul of any technology is in the people who conceived and built it. It’s a point Kidder makes brilliantly and brings home in every page of the book. The second point is more of a business school issue – and it’s a theme that runs through the whole story: namely, there are times when you have to bet the company to be successful.
Thinking about Microsoft’s proposed acquisition of Yahoo, I think both points matter.
I am not among Microsoft’s legion of detractors. For the first fifteen years of my professional life I was a programmer – and I loved it. Many companies have written one great program. A few companies have written two. Microsoft has written many.
I know that Microsoft detractors will sneer when I say that. They’ll point out that Microsoft’s most successful programs just built on the innovative ideas of others. They’ll point to VisiCalc, Turbo-Pascal, Word-Perfect, Dbase, Netscape, etc. It’s true. Microsoft’s best work has never been completely innovative. But in every case listed above (and many more) they took a category of software and produced programs that were markedly better than what had existed before. It usually took them three or four versions, but they did it.
Microsoft’s astonishing software virtuosity has transcended categories that for most other business would look impossible to cross. Microsoft has made great personal productivity software, great personal operating systems, great games, great development systems and great enterprise software. That’s amazing. No other company has a track record even remotely comparable.
Which is why their failure in the online world is truly disappointing. Microsoft just hasn’t seemed like the same company in recent years – at least outside of the Xbox unit. It isn’t just that they’ve been slow. They were never famous for the speed of their releases. But glacial doesn’t seem like an inappropriate description for their pace of development and even worse than the slow pace is the disappointing product evolution cycle. Microsoft products just haven’t gotten consistently better the way they once did.
When Microsoft launched Live Search, it was pretty substantial offering. It’s a very competitive search engine. Had it improved steadily, it might now be significantly better than Google (and Google for all their vaunted reputation hasn’t done much to improve their core offering in the last two years) instead of just another me-too product that isn’t quite as good as it needs to be.
The same is true in our core area – analytics. Why Microsoft is launching a free web analytics package is beyond me. Why it’s a pure SaaS offering is something of a puzzle. And why it’s just another slightly inferior version of Google Analytics is really mysterious. What do they hope to accomplish with this? I’m not sure if Google has a strategic vision behind half of what they do. But I’m damned sure that just aping them isn’t a good strategic vision for Microsoft.
And now comes the acquisition of Yahoo. Many analysts and journalists have made the all too obvious point that buying a company that is, itself, struggling with the “vision-thing” may not cure Microsoft’s internet ills. I’d agree with that. There’s a pretty good chance it won’t.
But I don’t think it’s necessarily a bad move. This may well be a time, as the folks at Data General would have said, for Microsoft to bet the company. Certainly Microsoft has never made a riskier acquisition; an acquisition more likely to stress the company, dilute the brand, and change the corporate culture. As profitable as Microsoft’s desktop business is and remains, it isn’t hard to see why Microsoft would take the risk. They aren’t stupid and they aren’t blind to the sea-change in computing going on all around them. They just haven’t been able to capitalize on it.
Where this leaves the soul of Microsoft – what kind of company it is, or even wants to be, is anybody’s guess.
Can Microsoft leverage Yahoo to fundamentally change their position vis-à-vis the internet. Possibly, but I doubt they will. To do so, I think they are going to have abandon the business-as-usual, me-too approach to competing with Google that both they AND Yahoo have suffered from.
In particular, I think Microsoft has to attack Google’s core revenue base – to force Google to concentrate on their main business and slow Google’s pace of innovation.
Google has two main revenue streams – search and the content network. Microsoft/Yahoo has the potential to attack the revenue streams from both. But only if they fundamentally change their business model.
If I were Microsoft, I’d attack Google’s Content Network first. It’s a significant revenue source for Google and it’s also their weakest program. Google’s Content Network lacks transparency for buyers and has significant issues with fraud, deceptive site practices by publishers, and branding issues. This is an almost pure technology/enterprise play. Microsoft/Yahoo would be in an excellent position to increase transparency in a Content-buying network, insure that only reputable sites/publishers are allowed to play, and deliver this advertising to buyers with only a minimal cut from the middle-man. Most serious Search Engine Marketing buyers hate Google’s program – but they can’t resist the volume. Most publishers like it fairly well – but they’d never say no to a larger share of revenue. Microsoft/Yahoo might be in a position to change this market IF they willing to aggressively pursue it by giving a dramatically better deal to both publishers and ad buyers.
Google has been virtually unassailable in Search – even by companies like Ask that appear to have superior product. And while combining Microsoft and Yahoo makes for a more formidable number two, their combined Search share now adds up to less than Yahoo’s share two years ago. So it’s hard to see how the combination will transform their overall position in the marketplace.
Instead, I think Microsoft needs to re-imagine Search. I have long believed that the key to a better search is to make it more like an embedded application – with sorting and filtering of commercial results that are automatically split from non-commercial results. That’s impossible for Google, because it would break the whole pay for position paradigm. Throw out that paradigm, and you have the potential for a dramatically improved set of commercial listings. How would you make money? You wouldn’t make as much, of course, but you could sell improved branding and rich media inserts that popped up on roll-over. The point is not to grow revenue – it’s to take money out the market and capture mind-share.
Needless to say, such a strategy executed by properties as large as Yahoo/MSN would put drastic price pressure on Google. A cohesive strategy in Search/Content Network/Properties that strongly favored large enterprise buyers might peel off these major clients from Google and put a terrific crimp in the quality of their paid results and their bottom line. Might such a strategy be disastrous for Microsoft/Yahoo? Yep. This is a lot riskier than attacking the Content Network. But if Microsoft can successfully re-imagine Search, they could cripple Google’s revenue stream and decimate their largest competitor.
What about Microsoft’s me-too web analytics offering? As part of a cohesive big-client strategy, it could be re-structured as an enterprise class product (SaaS and in-house) that was both sold and supported. Significant companies don’t care so much whether an application is free or not. They want it to be enterprise ready and come with enterprise support. If the Analytics package was enterprise class and tied directly into the buying package it might actually MEAN something.
Do I expect any of this to happen? Not really. Big acquisitions rarely go all that well and Microsoft’s reputation for Internet innovation is about on par with Major League Baseball and Drug Testing.
Remember the two lessons of ‘The Soul of a New Machine?’
Data General bet the company - and it worked. But when the sea-change that was the personal computer eventually wiped out the whole mini-computer industry, Data General and all of their brethren went down with the ship. You may have to bet the company – but it won’t always work.
What’s more, I can’t help but think that without Bill Gates' hands-on involvement, Microsoft’s once unique persistence and aggressiveness is mostly gone. Perhaps Bill Gates wasn’t a product visionary, but I think he brought a toughness, persistence and aggressiveness to Microsoft that is sorely missed and that helped turn many a mundane program into something special. He was, I suspect, the real soul of that particular corporate machine.
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