Thoughts on the Prospect of a Yahoo + Microsoft Merger

Just some short thoughts on the prospect of a Yahoo + Microsoft merger, if it happens:

We won’t see any real results from this integration until early 2010 – That’s the best case scenario. Assuming the deal closes in mid 2008, it will take another 6-12 months to figure out reporting structures, organization, merge product plans, and the like. Then it will take another 6-12 months to see the fruits of the integration in terms of new/updated products and such.

Yahoo’s problems are rooted in monetization, not traffic. Microsoft’s problems succeeding online are rooted in their success in desktop software. How does this merger help either party address its weakness? I’m not really sure how this helps either company. I continue to believe that Microsoft’s core problem with the web is that they simply make too much money on desktop software. As such, it’s got to be hard to get traction for any legitimate shot at web success that isn’t closely tied to the desktop strategy. It’s like a golden noose of sorts – a lot like the “creosote bush” analogy that Intel experts have used to describe how their success in microprocessors makes it hard to succeed in other businesses. Given Microsoft’s relatively lackluster efforts in online monetization, it’s not clear to me how Microsoft can help Yahoo with its monetization woes.

This is good news for Facebook and probably for Google
. For engineers in the valley looking for work, I think the prospects of this Yahoo + Microsoft tie-up is going to make the prospects of joining Yahoo less attractive in the short term – why not wait for the dust to settle before voting with your paycheck? This should help Google and Facebook from a recruiting standpoint. Also, I do think Yahoo has some good social web DNA that hasn’t been really unlocked. If management time is focused on figuring out the merits of a merger versus an independent path, it will give Google and Facebook more time to hone their strategies without a concerted threat from a large player.

The best independent path for Yahoo is to work with Google on search. I still think this is the only viable path for Yahoo short of linking up with Microsoft. Yahoo has lots of interesting properties that still generate a lot of traffic. They are the #2 search destination on the web in the United States. If they could boost their monetization, I think they’d have enough breathing room to figure out how to better rationalize their product development plans and do some of the heavy lifting needed. And if Google is willing to pay MySpace a $900 million guarantee for their social networking ad inventory, I shudder to think how large a guarantee it would take to get the Yahoo deal done.