If Microsoft Buys Yahoo, It Should Spin It Off With MSN

The New York Post reports that Microsoft is urgently trying to buy Yahoo again, in part because it's sick of losing deals to Google (and, no doubt, sick of losing to Google, and Yahoo, and AOL, et al...).

Would it be a smart strategic move for Microsoft and Yahoo to combine forces? Absolutely. Is the best way to do this to have Microsoft suck Yahoo into the massive Windows/Office empire? Absolutely not. If Microsoft buys Yahoo, Microsoft should immediately spin the Yahoo-MSN business out as a separate company. If it doesn't, both Yahoo and MSN will die.

With all due respect to the amazing talent and resources at Microsoft, no company can do everything. Microsoft is now so massive and broad that it is competing with IBM and Oracle on one end, and Sony, Apple, Google, and Yahoo on the other. All of these businesses are complex and tough, and focus is a major advantage.

In the past 12 years, despite its enormous talent, power, and desktop/browser monopoly, Microsoft has done no better than become an Internet also-ran. Why? In part because of internal politics: In Redmond, the Internet business will always be second-fiddle to the Windows/Office cash machine. In part because of talent: Why would the best Internet talent want to work in a small division of a massive company, kowtow to Windows/Office kingpins, and get paid in stagnant Microsoft options, when he or she could become a billionaire at the next Google? In part because few, if any, dominant industry leaders in one technology wave have also dominated the next one.

If Microsoft spun out Yahoo-MSN, the company would be able to recruit the best talent, run its own show, and, if necessary, compete with the Microsoft empire. The company could have an exclusive technology deal with Microsoft and get first crack at all partnerships. Most importantly, existing Microsoft and Yahoo shareholders would benefit from all the upside: Microsoft would be the company's single largest shareholder.

Alas, this sensible solution seems unlikely... because ego will get in the way.

See also: Microsoft/Yahoo: The Reasoning Is Sound

Comments

[Tom B:]

I use Flickr, which is excellent, having been independently developed and bought by Yahoo. I use Yahoo Mail, which is grotesquesly inferior to Gmail, but it works and it is free. I visit the Yahoo home page, which seems to become increasingly ugly and busy and less useful by the day. If MSFT buys Yahoo, it would be a disaster for Yahoo users, like myself, because the already uneven quality of Yahoo' s service would decline rapidly. MSFT has proven again and again that they are completely lacking in style and competence, with regards to both content and software development. I'd be inclined to migrate entirely over to Google, as would millions of other people. And it would cost me a lot of time and trouble.

2007 May 04 09:30 AM

[Tom B:]

....Moreover, combining two declining "old tech" companies rarely provides a winning strategy.

2007 May 04 09:33 AM

[Echo To All:]

but by acquiring, then spinning it off... to me that sounds like the deal's purpose would be to soley punish Google. That would not make any sense. MSFT (the entity) would not benefit as greatly, with the exception of a potential asset appreciation from the newly created entity. (In this stage of the online growth game, I do not think that would happen.)

2007 May 04 10:26 AM

[Tom B:]

Maybe it's a ruse to sucker GOOG into buying YHOO.

2007 May 04 10:30 AM

[blackbox:]

Doesn't a partnership or joint venture seem much more likely for these two? A merger (or a merger, spin-off) would be such a distraction in this business, meanwhile GOOG would keep plowing ahead...

2007 May 04 11:17 AM

[Tom B:]

You expecting logic from monkey-boy Ballmer?

2007 May 04 01:56 PM

[Polizeros:]

After using both for years, I've migrated to Google. Email, News, Calendar, Reader, etc. all in one place. Yahoo is still better for finance, but that could change too.

PS You can forward Yahoo mail to GMail and read it there. I do this with all my email accounts now.

2007 May 04 12:45 PM

[Tom B:]

"Yahoo is still better for finance, but that could change too."

Agreed. But Google Finance is a promising start. Nice interface, though still a little buggy.

The pain will be losing Flickr. That will cost me hundreds of hours in migration time-- and I don't know where to go.

2007 May 04 01:37 PM