A reminder of why Microsoft wanted Yahoo

So why did Microsoft try so hard to buy Yahoo? Simply put, Google is Microsoft's nightmare come true, and the Windows maker needed Yahoo to better compete with that growing search beast in Silicon Valley.

Henry Blodget at Silicon Alley Insider has posted Tuesday a good look at how Microsoft's Windows and Google's search will stack up by 2009. The results aren't necessarily surprising, but they're certainly interesting to see in print: By this time next year, Blodget predicts, Google search will pass Windows in total revenue.

Google is no longer in Steve Ballmer's rear mirror. It's right next to him.

(Credit: Dan Farber/CNET News.com)

Blodget makes a few other significant points: Both products are natural monopolies; both are incredibly profitable, with operating margins topping 75 percent, and Google search is growing a lot faster than Windows.

Of course, Microsoft doesn't just do Windows. The company has plenty of other, incredibly successful products, ranging from the Office suite to the Xbox 360 gaming console. But the mantra at Microsoft has always been that everything begins with Windows. When Windows has a real rival, Microsoft has real problems.

As Blodget notes, there are caveats: The unofficial Office monopoly should give Microsoft breathing room for a few more years. But even that could be threatened as Google's more-affordable Web applications improve.

This storm has been gathering for years. In 2005, we wrote a piece at News.com about Google's longterm threat to Microsoft. The impetus was a major management shuffle at MSN, but we had fun pulling out some old Microsoft memos about now-defunct Netscape in the early days of the World Wide Web. My favorite was a note written in 1995 by Microsoft engineer Ben Slivka describing a "nightmare" scenario for his company.

"The Web...exists today as a collection of technologies that deliver some interesting solutions today, and will grow rapidly in the coming years into a full-fledged platform (underlined for emphasis in the original memo) that will rival--and even surpass--Microsoft's Windows," Slivka wrote.

Microsoft didn't pay too much attention to the warning. Ten years later, another internal memo put a name to that nightmare--Google. Now Blodget has advanced that nightmare scenario a few more steps with his analysis.

It's always stunning that big companies can see a threat to their business years before it happens, and then fail to do something about it. (But then I suppose Clayton Christiansen wrote The Innovator's Dilemma for a reason.) Digital Equipment saw client/server computing on the horizon, and laughed it off. Sun Microsystems saw the threat from servers running x86 chips and Linux software long before it became a problem, but dithered for years before doing something about it. The list goes on.

More than a few bright minds inside Microsoft saw the threat years before it became a reality. The funny part is, they're still trying to figure out what to do about it.

[marc_90292]

Add to that Xerox which owned - I think it was - Parc or something like it and wanted to sell it rather than use its absolute fabulous brains for innovation.
Back in the sixties, when Xerox was still stuck with its 914 I designed a desktop printer that was twice as fast for SCM - SCM negotiated a license but didn't go for it because Xerox wanted SCM to reduce the speed from then 20 prints per minute to six. SCM sued - said to have cost it nearly $1 billion - and got nowhere. Oh well.

[delf76]

I don't know if I would agree Google is a monopoly on Search. Everybody has a choice on what they want to use for search. With an Operating System it is a little different. When you buy a computer, you can buy Windows, Linux, or a Mac. But it's still up to you what you want to use for a Search engine. I know some people that use Yahoo Regliously.

[tundraboy]

I maintain that if Microsoft had gone along and let itself be broken up, the baby Microsofts would be in much better health then the current MS. The apps division would have been free of the burden of defending the Windows monopoly and can thus pursue all opportunities no matter the OS, and the OS division would have been more willing to finally tell users of obsolete legacy apps to modernize their systems or go jump in the river.

Instead they fought it tooth and nail and even supported G W Bush's candidacy (even though Gates himself probably recoils at Bush's brand of politics) because he promised to rein in the dogs. We all know how great that moron's tenure has been for the country and Microsoft's not doing too well itself.

I call that poetic justice.

[maneeshpan]

I think Microsoft needed Yahoo more than Yahoo needed Microsoft. That is why Yahoo resisted the merger. Microsoft promised a hostile takeover if Yahoo did not sell by April 26th and despite the Microsoft ultimatum from evil the evil Redmond giant Yahoo stood firm. Also from a consumer perspective this is a good thing. Who knows what what happen to Yahoo under Microsoft? Possible outcomes: Microsoft might shutter Yahoo Mail and Yahoo Messenger and insist Yahoo users switch to MSN Hotmail and MSN Messenger (i.e. Windows Messenger). Think of the ripple effect this could have on Net Neutrality. Microsoft already has the most market share in the browser space (although its declined to 70-79% from 90% a few years ago) with Internet Explorer also known as IE and are trying to break into the paid search market and online advertising market to compete with Google and Yahoo. A Yahoo buyout would leave Microsoft's only major competitor in search and advertising as Google which is already # 1. Consumers should have more choices not less.

Telecom and cable companies are trying to kill off Net Neutrality giants like Microsoft don't care about an open Net either. If Microsoft had its way IE would still be used by 90% of computer users running Windows on their PCs and all websites would be IE only. No one could offer an alternative browser that works on Windows. If Microsoft owned Yahoo a similar precedent could occur. Frankly, I don't trust Microsoft. I've refused to upgrade my PC from Windows XP to Vista because of all of its bugs when running XP software on Vista, plus the Vista Start Menu is ugly compared to XP. I've seen Vista PCs before although I don't own them.

I agree 100% with tundraboy's position. Microsoft's app business today had Microsoft been broken up would be free from the burden of defending the Windows monopoly. Where does that leave Microsoft's Office monopoly though? Would the broken up app company have a monopoly in Office? Also how would such a move have affected Microsoft's Macintosh Business Unit (MacBU) the only unit of Microsoft dedicated to making Microsoft products for a non Microsoft platform.

I use Apple's Macintosh computers today and sometimes Windows PCs even though today's Intel based Macs can now run Windows I prefer a PC for that which I can customize the hardware on.

[sunil_gupta20801]

Microsoft should buy Yahoo and should comeup with some good solution against Google, otherwise Google will eat Microsoft in long run.