Microsoft Is Building A Spaceship Out Of Spare Parts

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By Saul Hansell

I used to write about bank mergers, and those always struck me as taking two aircraft carriers and building a new one out of the parts.

For Microsoft, trying to build a new Internet portal-search engine-advertising network-cloud computing company will be trying to make a new interplanetary spaceship out of an old Soyuz capsule and Skylab while hurtling through the cosmos. The parts are temperamental; the systems are delicate; and the risk of catastrophic failure is ever-present.

Let’s look at the key assets that will have to be combined. Most of them are unusually delicate machines with lots of interdependencies that well could be thrown off by a combination.

The biggest risk is that engineering teams from Microsoft and Yahoo will spend years fighting to prove their systems are better and their bosses will listen instead of cutting off debate, picking something and trying to actually take on Google. Let’s look at those parts.

A Web Search Engine. Both Microsoft and Yahoo know a lot about search and they have spent a lot of time getting close to, but not matching Google. But they have taken different technical approaches. Combining the best features of both of them would take years. Yahoo did this to surprising success when it merged Inktomi, FAST, and Alta Vista into its new search engine. But why bother? Google’s engine is generally seen to be better. Would Microsoft be willing to throw out its multibillion dollar investment in Live search to go with Yahoo and avoid losing two more years? I’m not sure.

Advertising Systems. This is where the big payoff should come from. The more bidders in an auction and the more pages on which ads can be placed, the more money to be made. But these systems are even more complex than search engines because they combine algorithms to pick the best ads to show on a given page with a real-time auction among advertisers. Yahoo and Microsoft have built their new advertising systems from scratch, but neither is anywhere close to Google’s system †as measured by revenue per search. Here Yahoo’s track record is lousy: Its Panama system was more than a year late and over budget. Combining it with Microsoft’s Ad Center will likely cause a lot of pain.

Web Portals and Applications. The back-end systems aren’t anywhere near as complex, although both Microsoft and Yahoo have taken more than a year to redo their e-mail systems. Merging instant message systems might make a rival to AOL’s AIM. Consumer habits change slowly, but the sites can keep their old pages in both the Microsoft and Yahoo formats even as they build out new pages. There is a lot of overlap that will need eventual cost cutting. There is a wide-open race to create Web applications such as Google Docs. If this deal can get Microsoft to cut this effort free from Office — a big if — it could be an advantage.

Consumer Brands. After Windows Live (and Plays for Sure), Microsoft should get its license to brand revoked. Steve Ballmer on the conference call this morning said the Yahoo brand is strong. I suspect the combined company should double down on Yahoo moving forward.

Management. This is where I get stuck. Every other problem with this deal can be worked through if the people in charge have the combination of vision and the ability to get things done. I’m just not sure that the people running either Yahoo or the Internet operations of Microsoft have shown either of these traits. At Yahoo, Jerry Yang and Sue Decker have yet to deliver either inspiration or financial results. And it’s not exactly clear who is running the show at Microsoft. The Internet unit reports to Kevin Johnson, who also looks after Windows. Below him is an inscrutable matrix that spreads blame for the losses of dollars and market share far and wide.

Building a spaceship out of two piles of used parts is difficult enough. It’s near impossible without a captain who knows where the spaceship is flying.

The clowns in the computer business, especially software, are always going on as if they’re building starships, so this piece is aptly named. In reality they can count themselves lucky on days when what they build doesn’t squirt brake fluid all over the road just before it hits a tree.

†Posted by j21064

Microsoft is a great company with great products. If the government hadn’t got in the way with the anti-trust suit, they would be even better.

†Posted by Rick Lahmann

The GM of computer companies! These guys couldn’t even EQUAL the iTunes software, after having 4 years to look it over top to bottom. And Zune points instead of plain-english pricing?

these guys are fatally flawed, a genuine business tragedy.

Soon they’ll be in the rear-view mirror as an antiquated, outdated behemoth, much like the current “administration.”

amazing!

†Posted by Nick Weston

Thank you! I couldn’t believe all the talk I’ve seen about what great potential this deal has. Is it a good idea to have a company, like Yahoo, decrepit in its young age, combine with a wonderful OS-maker but horrible search and content maker (i.e., Microsoft), and really think that the pairing is good for anyone? If search is really having a hard time now anyway, and according to Google’s most recent insights it certainly seems to be, then a prudent investor will damage MSFT for its amazingly difficult-to-appreciate master blunder.

†Posted by Thank Goodness

What’s missing from the Microsoft & Yahoo search effort is a Spock type to architect a plan, a Scotty to hold the engine room together and a Captain Kirk to drive the effort to success in a risky environment.

What we have now are the proverbiale Star Trek Ensigns who we know will be killed off by the end of the episode.

†Posted by Greg Oien

Maybe Captain Gates will get beamed up and aboard to hammer out the leadership problems, he’s pobably the only guy that can provied the vision and quite the arguing

†Posted by Ace

Competing with a company like Google is going to be hard. The product and customer experience Google has created over the years has brought great value to this company. Lets take a look at the products Microsoft has to offer up…..Vista! Well I think there time and money can be spent in places like improving the core or MSTFs foundation and fix the errors in Vista before Google decides it to can make a better OS and take over that market as well.

John Power Plant Operator Logs

†Posted by John

I dont think its just going to be bolted together. They will keep working separately for a while. They will discuss and argue technical niceties and hopefully choose whatever’s better, at a very granular level. I mean, hey, this screw is a lot better than that one, and here’s why, and so on and so forth. I think we have to give terry semel credit for at least building a pretty good search team in his tenure, microsoft has always been attracted to the marquee talent there. some things might even stay separate, like msn messenger and yahoo messenger because users are just so used to each one, etc. But so what - they might still be chugging off the same advertising backend.

†Posted by vick

On management, there would be one team in charge of making this all work as MSFT would be buying Yahoo, not merging, not joint venturing, not partnering. Anyone not on board with the integration should be shown the door. This can be done. The rallying cry is do this well to be a counterweight in the online advertising world to Google. The vision can be a compelling one. The combined assets can be compelling too as there are some great assets there.

†Posted by Chris Lien

The merger is not about Microsoft making use of Yahoo’s systems or know-how. It is about Microsoft becoming the number two player in the internet advertising business by digesting the current number two. Obviously Microsoft will offset the cost of its purchase with any usable hard assets it obtains from Yahoo (including any usable intellectual property), but ultimately it is buying market share, not an ongoing operation.

†Posted by Thomas Kurt

Unfortunately, your assumptions seem to be correct in this case. The search engine has become a sort of oracle of knowledge and having a monopoly doesn’t seem like the wisest way to do it. The reason Google has been so successful is because they deliver the results you are looking for. A search on yahoo or live never seems to answer a question you are searching for. Luckily, the new project wikia is coming online and could prove to be a worthy adversary. In reality though we’ve come to far to go back to the times when there was eight or ten search engines in which gave different results. There was infoseek, altavista, mamma, webcrawler, metacrawler and many others. If only there was a way to recreate them.

†Posted by Jared Heltemes

I don’t think this piece is even an attempt at being analytical.

†Posted by Carson

This post displays an MBA-like focus on “management,” as though that were the most important thing. As Google has proven, the most important thing is technology, the very thing that Saul ignores.

In reality, the technical debates that Saul pooh-poohs are the most important issues to “get right” in the merger. Yahoo suffered for years under Semel precisely because Semel is not a “Web guy” and not an engineer. A technical company requires good technical decisions.

The great failing of Microsoft is that it has forced its very smart programmers to build a system based on Windows. Smart programmers rebel at the very thought of having to work with Windows and its atrocious APIs, more obsessed with backwards compatibility than technical excellence. Google would have nothing to do with Windows and builds its technology on UNIX platforms, the only real platform for servers. You cannot build a rival that will catch up to Google’s technology if you are stuck with Windows on your servers.

If Microsoft cuts off the technical debate and forces the Yahoo folks to switch to Windows on the back end, then this acquisition will be for naught (much like the forced migration of Hotmail to Windows after the MS purchase, which destroyed Hotmail). I can only hope that MS will smart up and realize that it should let Yahoo keep its technology and engineering staff, and leave Windows as far away from Sunnyvale as possible.

†Posted by KL

You’ve missed the point. This has nothing to do with building a better anything. This is entirely about ‘internet search’ market share.

†Posted by JB

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