With the news that Microsoft walked away from buying Yahoo!, everybody and his brother is offering commentary, with some doing it more than once. The New York Times wrote four articles about it:
- Google, From Stirrer to Spoiler, Ends Microsoft's Yahoo Search
- Yahoo Chief Says Microsoft Was the Stubborn One
- Now in Play: AOL, Facebook, and Many Others
- Microhoo, We Hardly Knew Ye
The Wall Street Journal went to town as well:
- Giving Up on Yahoo, Microsoft Rethinks Its Internet Options
- Deal or No Deal, Ballmer Needs to Turn Weakness Into Strength
- Yahoo Holders Turn Up Heat After Microsoft Deal Talks Fail
- Past Shows Microsoft Is Only Jilted for Moment
Microsoft should walk away from deals more often. It hasn't gotten this level of coverage in non-industry media in years, while Google frequently bathes in the Technology section spotlight (e.g., my blog post of September 13, 2007).
The comments on the "Microsoft Walks On By - Yahoo!" post on the Mini-Microsoft blog make for interesting reading, since many are from Microsoft employees. While the majority express relief at the news, there's a wide variation in what to do next: from reorganizing MSN ("What's Steve's big plan to clean out the rot and turn MSN around?"), to fixing Microsoft's image problem (What kills me is how hated Microsoft really is."), to getting back to writing software ("Forget advertising, let's get back to SOFTWARE.").
In glancing through this diverse commentary, I haven't seen anyone mention the aborted Microsoft/Intuit merger a decade and a half ago. Microsoft Money was getting lambasted by Quicken, and so Microsoft said, "OK, if we can't beat 'em, we'll join 'em," agreeing to buy Intuit in October 1994 for $1.5 billion in Microsoft shares. However, the deal unraveled under anti-trust scrutiny and Microsoft paid Intuit a termination fee of $46.25 million to walk away.
I would not be surprised if we now see a replay of that episode here. With its ability to buy its way into a market blocked, Microsoft went back and fixed Money, to the point where in feature bakeoffs it's typically considered either slightly better or slightly worse than Quicken from year to year. If Microsoft did the same here--if it took even a chunk of the $44 billion it was going to use to buy Yahoo! and applied it to basic block and tackle improvements--it could improve from being a distant number three. However, to do so it cannot mimic Google--it must be significantly better than Google in some areas--to get people to try it. That's why Google became pre-eminent in the first place--it was so much better than the incumbent at the time (Alta Vista).
For example, because of its software and services strategy, Microsoft could mine what users do on their PCs (with appropriate permissions from the user, of course) and use that information to give context to web searches (e.g., realizing that user A is a banker, the system would return "automated teller machines" results to an "ATM" query and "asynchronous transfer mode" results to a network engineer). This is a capability that would be difficult for either Google or Yahoo! to counter and would give better search results. So while Microsoft is currently down, it's not necessarily out.