Brij Singh's Blog

February 4, 2008

Who knows why Google is worried about Microsoft/Yahoo transaction?

Filed under: Uncategorized — Brij @ 8:08 pm

Big companies are complex beasts. Their business motivations are usually hidden. In the case of Microsoft’s hostile takeover bid for Yahoo, motivations are harder to understand. Microsoft and Google both have a history of not answering (and not listening) to stock market reactions. These two companies can plan long term. Microsoft move has to be seen in that long term context. To analyze this properly you have to get out of valley echo-chamber and see where user is going with their online experience. Where new users are coming from and what new behaviors will be lucrative to monetize around.

There are tons of literature on why companies go for M&A, this old dot-com era HBS paper outlines leading motivations. If you play these motivations on RPV (resources-processes-values) framework then long term answers can be found. I guess it’s easy to place bets on long term (short term has higher emotional element!). So what are the possible long term trends here –

Enterprise and consumer market separation is not that straight forward anymore
. Market has to be redefined, before any competitive barrier strategy can go into implementation. Somewhere down the road enterprise architecture will overlap with cloud computing architecture, and that’s where massive value shift will happen. Or is it already happening?

Media sector has emerged as the net technology play. You cannot think of having any media entity without first figuring out the technical blueprint. Is Google a technology company or a media company?

Battle for developer platform will move to mobile and media verticals.

These three trends are the reason why Microsoft is going after Yahoo. Yahoo gives them traffic, media expertise and good properties to extend into developer market. Google is smart and they are scared now. Timing is not good for them.

Scoble has a well thought out post on this same topic. I like his analysis but I think he is giving too much credit to Google. He writes:

Google doesn’t mind this deal going through at all. Google knows they will be able to outrun a “Microhoo.”

I don’t think that is true. Google’s biggest currency is their stock option. With Microsoft going after Google’s fat margins, they run the risk of spending time to “manage” stock price fluctuations. That will hurt their culture and that will be a huge damage.

Scoble’s point about email is off the mark. Email is still the killer app. His point –

Email is not where the money is. Google knows this. So, who cares that Microsoft and Yahoo have a monopoly there? There’s only one way to make money with the 600 million who are on either Microsoft’s Hotmail or Yahoo’s email: get them to join other services where there ARE ways to make money. Danny Sullivan told me that this deal is all about search. He’s right. But you gotta be able to get those 600 million people to not just use your email, but come over and use your search. Google is trying to slow down these teams from doing that. But Google knows that even if Microsoft and Yahoo join email and do a pretty decent job of integrating search into there that Google will still see more growth in both email and search than Microsoft and Yahoo together will see. Why? Have you compared Google’s offerings to the others? I have (I am a Hotmail user). Even though I am locked into Hotmail cause my email address is all over the Web I’d rather be on Gmail and Google’s offerings are better integrated and better designed.

There are several trends making email a factor in the Microsoft/Yahoo transaction-

There is still a very strong motivation to start daily information consumption cycle with email (yes sometimes before morning leak!). Any idea how much money Google makes every time you open Gmail? Nobody wakes up in the morning to go and hit Google for search. There is no motivation there. Email brings motivation.

Also users read their email slowly (read more attention to whatever ad you might have on sidebars) , whereas on search pages/content sites we all become scroll monkeys. This is an important distinction and will become important as marketers draw user attention graph and place their budget accordingly.

Without email, there will be less motivation for making search queries. Same as first point. If my motivation and context is not overlapping, I will generate less queries. Less search queries for Google means bad news.

As I said in the beginning, big companies are complex and things they do are more complex.

There will be lot of point counter point between Google and Microsoft. I am keeping my eye on two things here – how this will play out on Google stock and also impact on the overall startup funding climate.

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