Microhoo

For somebody who’s been writing about the devolution of the large corporation (e.g.), MS’s huge bid Yahoo is an arresting development. Obviously the 62% premium reflects an assumption of significant synergy. But where does this supposed synergy come from? Ballmer’s “bear hug” letter to Yang begins with

Scale economics: This combination enables synergies related to scale economics of the advertising platform where today there is only one competitor at scale. This includes synergies across both search and non-search related advertising that will strengthen the value proposition to both advertisers and publishers. Additionally, the combination allows us to consolidate capital spending.

This makes some superficial sense. It points to the fact that today’s megafirm differs from that of a previous era. Now it’s about scale economies of marketing rather than of making products. It’s possible (I’m agnostic on this) that only a combination, and not contracting, could yield these economies given the risk of opportunism by contracting parties.

I’m less convinced that a combination is necessary to achieve Ballmer’s other stated objectives: "expanded R&D capacity," "operational efficiencies," and "emerging user experiences." How much of this is eyewash for the antitrust review? Operational efficiencies? It’s already evident that combining these two huge firms will be a logistical nightmare. With respect to expanded R & D: do the firms have complementary patents that can’t otherwise be licensed? And about “emerging user experiences,” Ballmer says:

Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced.

Hunh?

Comments

[fred]

I work with both Y! and MS(Service side) on a daily basis.

This is going to be a disaster. Despite evidence to the contrary, MS believes, deep inside, that they know better about what people want and how to build it. The MS culture is rigid in their belief systems because these beliefs have allowed them to dominate in the Office/OS markets. When their methods of doing things don't work so well (web,iptv, xBox, etc) they are unable to adjust and don't reach their business goals.

Y!, despite a distinct lack of strategy, is still much better at giving people at least some of what they want.

So, MS will buy Y!, install MS management, drive away the worker Bees, try to move working functionality to a MS infrastructure, and wonder why it fails.