Three ways of looking at the Microsoft-Yahoo deal

Microsoft’s US$44 billion bid for Yahoo involves a tangled combination of software, services, customers and partners. ComputerWorld Canada talked to the experts to explore three issues that could prove critical if the deal goes through.

1. Products and services on both sides face major integration issues

One industry analyst says Microsoft should get rid of some of its services in favour of Yahoo, which has a stronger brand on the Internet. Karsten Weide, program director for digital media and entertainment at Framingham, Mass.-based IDC said Microsoft should transfer its media properties to the Yahoo brand.

“I think Microsoft would be well advised if they kept the Yahoo brand,” he said. “Yahoo is a much stronger brand, perhaps not in the wider world of software but in the Internet it certainly is.” However, he added integrating the two systems will be problematic.

“These are systems that are incredibly complex in particular in terms of the performance they have to maintain,” he said. “The scalability is so huge, the traffic is so huge it will hard to merge those technologies.”

But users of Yahoo Mail and Windows Live shouldn’t be concerned they will lose their accounts any time soon, said Timothy Hickernell, associate senior research analyst with Info-Tech Research Group .

“I don’t think you’ll see an immediate rush to consolidate the two from the end users perspective because it’s really about the revenue stream” of both advertising and some of the paid e-mail services, such as extra storage space, available for Web mail customers.”

Microsoft and Yahoo’s services include not only search and productivity tools but content, particularly news stories. Monica Paolini, Monica Paolini president, Senza Fili Consulting LLC of Sammamish, Wash., predicts there will be “some consolidation” between the Microsoft Network and Yahoo online services.

While Yahoo publishes news from wire services such as Canadian Press and Reuters, for example, a Canadian journalist noted MSN has its own reporters.

“When more and more people are getting their news from online sources, I would hate to see any merger result in a decrease in original content,” said Mary Agnes Welch, president of the Canadian Association of Journalists and a reporter for the Winnipeg Free Press. “One thing the Web still lacks is really good original content, and MSN has it and I would hate to see it eroded.”

“It would make sense to make a single brand but it probably wouldn’t happen right away,” she said. “Each brand has a strong appeal to the market.” Although it’s too early to predict what will happen, she noted after many mergers, companies will eliminate duplicated services.

“Typically when you have an acquisition of this type, eventually at the beginning you try to keep the two brands separate but then you realize it makes sense to have them joined. The question is how long is it going to take?”

–Greg Meckbach

2. Developers face uncertainty

It’s too early to tell how the Microsoft developer community will be affected by a combined Microsoft-Yahoo platform, said Greg Kirkland, an analyst with Wash.-based research firm Directions on Microsoft.

Microsoft doesn’t have a stellar track record with big acquisitions, said Kirkland, citing those around Great Plains Software Inc. and Navision AS that are still “suffering from indigestion and trying to straighten out that product mess.”

He said it will take years to sort out overlapping products and technologies and then “re-integrate the winners back together into something.” But because the acquisition of Yahoo is driven by the advertising business and not the platform side, Kirkland said Microsoft will need to figure out what this move means for MSN and Windows Live.

“Are there certain things in Windows Live and MSN that go away and get replaced by yahoo and vice versa. This is going to take a long time to shakeout,” he said.

The effect on developers will take a long time to transpire, he said, adding the situation will be compounded by anticipated infighting and the need for internal work by Microsoft to straighten things out.

“This is not like buying some business that Microsoft isn’t already in. There’s a one-for-one alignment between things in Yahoo and things in Microsoft. Those are the worst kinds of acquisitions.”

Timothy Hickernell, associate senior research analyst with London, Ont.-based analyst firm InfoTech Research Group, said the move will give Microsoft more direct access to integrate Yahoo’s advertising services into Microsoft’s business applications. “One of the beneficiaries would be Dynamics CRM.”

For the purposes of e-mail marketing, customers of Dynamics CRM “would benefit greatly by having access to a lot of the advanced services that Yahoo has.”

Kirkland said the biggest question in all this is how the software mogul will manage the acquisition while also releasing Windows 7.

“Let’s face it, now any new Windows Live offering that Microsoft announces in the next six months will have a cloud over it because you’re going to think how that is going to play out with the Yahoo acquisition.”

–Kathleen Lau

3. The skills shortage might shrink

If the bid was successful, IDC Canada analyst Kevin Restivo said, he wagers that the search engine firm’s staff wouldn’t go far. “(The Yahoo! workers) will probably stay put,” he said.

But integrating the two cultures could prove troublesome for the companies. Said Restivo: “The two corporate cultures are quite different, so integration will take a significant effort.”

Despite the corporate differences, the current job climate could mean fewer lay-offs. Terry Power, president and chief operating office of the Toronto-based IT staffing company Sapphire Technologies, said that any speculation of the destination or outlook of the potentially acquired Yahoo staffers should be viewed in light of the current IT job market. “Companies are having a tough time finding top talent, so an organization of the combined entities (of Yahoo and Microsoft) would represent quite a talent pool,” he said.

Said Restivo: “Human capital is really at the crux of a technology company, and in such a fickle market, you really need people to move forward. A lot of the value (that Micro

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