Putting Microsoft and Yahoo together: Some pieces won't fitFebruary 1, 2008: 2:07 PM ET
With Microsoft's surprise $45 billion bid for Yahoo, a lot of people are talking about why the deal makes sense. The combined advertising networks and Internet plumbing, for example, would do a lot to help MicroHoo challenge Google (GOOG).
And those reasons might be enough reason to do the deal. In Microsoft (MSFT) CEO Steve Ballmer's letter to Yahoo's (YHOO) board, he emphasized how size would benefit a combined company. "While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence," Ballmer said. "Together, Microsoft and Yahoo can offer a credible alternative for consumers, advertisers, and publishers."
But there are lots of other pieces in the two companies' offerings that don't fit well at all. And some of those could cause major indigestion as Microsoft tries to get a deal done. Among the trouble spots:
Yahoo has always been a bigger online brand than MSN, so it stands to reason that MSN would just go away. Yahoo Mail, Finance, Shopping and Games all outperform their Microsoft counterparts, and on the surface it makes sense to just back the winner.
But there are lots of problems with that scenario. Most obviously: MSN and Yahoo have been battling it out for a while, and both have tens of millions of monthly users. MSN loyalists have clearly decided that they prefer MSN over Google -- so if Microsoft were to ditch MSN altogether, it would risk alienating a sizable chunk of its lucrative audience and losing millions in potential ad revenue.
Yahoo has HotJobs, Microsoft has a stake in rival CareerBuilder. Though on the surface it might seem logical to stick with HotJobs, which had 7.4 million visitors in December, and send CareerBuilder out to pasture, there are some politics to consider.
The big issue: Microsoft's CareerBuilder partners are major newspaper publishers Gannet (GCI), McClatchy (MNI) and Tribune, the owners of big newspapers like USA Today, the Miami Herald and the Los Angeles Times. Through their network of newspapers and websites, CareerBuilder is actually bigger than HotJobs. While newspaper companies might not have a lot of financial might these days, they control a whole lot of well-trafficked websites -- the kind of online real estate that Microsoft/Yahoo is eager to sell ads into. The company will have to find a way to settle things between HotJobs and CareerBuilder without alienating important advertising partners.
MAPS AND LOCAL
Maps and location-based services are becoming evermore important as the Internet gains traction on cell phones and GPS-type services gain popularity. Just look at the effect Apple's (AAPL) iPhone had on Google: the search giant said traffic to its maps nearly doubled the month the gadget came out.
So it's going to be a problem that Yahoo and Microsoft have totally different strategies for maps.
On this one, Microsoft wouldn't be able to keep both Yahoo Maps and Live Search Maps and have it both ways. Mobile carriers and other partners will want one clear direction for maps -- and if the past is any guide, that means Yahoo's open maps would go away.