“Acquisition at high cost with high risks”
This is a blog post that is not ECM related, but I feel that the issue is so interesting that I can’t leave it without a comment.
In the last week there has been massive media coverage on the Microsoft bid, and the last respond from Yahoo is “raise the offer and we talk”. In my opinion Microsoft objectives to merger is a strategic mistake, and I will try to explain my opinions in this blog spot.
I think one of the main reasons for Microsoft to buy Yahoo is that they want to enter and develop a global “cloud computing” platform to support distributed internet applications. Microsoft’s analyse in this matter is right – they need to build capabilities, but the way they do it (acquire Yahoo) is a mistake. Buying Yahoo is not the cheapest and smartest way for Microsoft to enter the cloud computer game. The treat from Google regarding free software is real, and need to be taken serious, but in my opinion Microsoft can gain capabilities smarter.
So why is this acquisition a strategic high risk game – ok I will give you three reasons:
1. Cash Cow will eat the Star
I believe that Steve Balmer know witch division is “butter and bread”, and so does the employees in Microsoft. Steve knows that someway down the road Google and cloud computing will threaten their Windows products, but how can he bring this enemy into the house without threatening the Cash Cow.
There are a fundamentally difference in the business models between Google and Microsoft. The offensive Google model is to use the internett to build a huge business so they can “kill” Microsoft, while Microsoft would like to use the internett to protect its already huge Windows/Office business. So if this is true what are the implications on innovation; at Google every cool application/feature that undermine Microsoft will be rushed into production, and at Microsoft every exiting new idea that undermine the Cash Cow will be killed or delayed.
So, if Microsoft acquires Yahoo there will be huge challenges in gaining synergies, because Microsoft will always support the dominant Cash Cow.
2. A new war - war on all fronts
Microsoft has a war going on all fronts, and each war requires a new battle-plan with different skills, allies, strategies and expertise. In every front Microsoft are up against strong competitors. Google is one competitor but so are Oracle, IBM, and Apple. Now Microsoft would like to enter the media advertisement (Yahoo main business) to support distributed internett applications. – I don’t think its wise to enter this battlefield?
3. Pre deal turmoil
There will be years not months before the acquisition closes. Regulators will look closely into this acquisition, especially in the EU. In this period the employees in Microsoft and Yahoo will enter a period with uncertainty. Combined with the fact that Google will bombard the Microsoft and Yahoo employees with good offers, and there is a high risk that the new entity will lose key personnel in the transition period. Another point is that innovation in both companies will be stiffened. Who want to launch new innovating products when there is a high risk that anyone associated with the new products will be eliminated by new management team. In this transition period towards a combined entity there will be uncertainty and shift of focus, while Google will be steaming full speed ahead – with perhaps new employees.
The bottom line
Google has built their business around Internet advertisement, distributed applications and cloud computing while Microsoft trying to transform business to gain capabilities in this field. In my opinion Google has the offensive strategies while Microsoft is the defensive part, trying to gain capabilities to avoid being decimated in the Internet segment.
Different strategies and different objectives! In this case, my bets are on Google
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