History never repeats itself exactly, but rereading Kevin Johnson's memo updating the troops on Microsoft's bid to buy Yahoo, I was struck by the contrast with another software mega-merger saga that dominated headlines 13 years earlier.
As we reported on Friday, Johnson, who heads up Microsoft's Platforms & Services division, detailed how a combination with Yahoo would have a tonic impact: Online advertising customers would gain a viable alternative to Google, while Microsoft would carve out a bigger piece of a nearly $80 billion market.
In June 1995, IBM stunned Lotus with a unsolicited $3 billion buyout bid. At the time, Lotus was in a world of hurt. Sales of the company's franchise product--its office applications suite--were slumping thanks to stepped-up competition from Microsoft. CEO Jim Manzi knew that the company's future depended on Lotus Notes, the hot groupware product spearheaded by the company's star developer, Ray Ozzie.
Unfortunately for Lotus, sales of Notes weren't climbing fast enough to compensate for the accelerating sales slump elsewhere at Lotus. So when IBM launched its unsolicited tender officer, Lou Gerstner expected a welcoming response.
Manzi instead gave Big Lou the middle finger.
And so what followed was a week full of back-and-forth statements and head feints as the real negotiations played out in the back rooms. At one point, Gerstner got on his plane to pay a special call on Ozzie, whose team of developers worked outside the corporate headquarters in the Boston suburb of Beverly. (The biggest historical irony in all this is that Ozzie is now the go-to technology luminary at Microsoft.)Whatever charm Gerstner used to convince Ozzie to stick around, it worked--that and a corporate decision by IBM to up its offer by a half billion dollars. Suddenly, Manzi was all smiles for the cameras, touting the combination with Big Blue as a big win for customers, shareholders, and employees. (Amazing how the same script winds up getting used time and again.)
I've often since wondered how Lotus might have fared if it remained an independent company. Would Notes really prove to be Lotus' savior? Impossible to say, but my back-of-the-envelope recollection is that Microsoft was marshaling its muscle behind its own groupware product. Bill Gates wasn't strong enough to shove around Gerstner, but he had already shown himself capable of outmaneuvering Manzi's Lotus. My guess is that Lotus would have wound up no differently than WordPerfect, a one-time software powerhouse also brought low by Microsoft.
Jerry Yang knows the history of the software business. In the absence of a white knight emerging, he doesn't have a lot of good cards. So for the time being, playing hard to get may the best way to coax a higher bid out of an unwanted suitor. After all, it worked for Manzi.