Given the ballyhoo this morning over MS saying no thanks in the Yahoo takeover (and it would have been a takeover, the Borg don’t merge), there is all kinds of speculation about how they will handle the threat of Google. The problem with this analysis is that Google is not the only threat and may not be the primary threat.
In search advertising Google is so entrenched (70+% of the market) that no acquisition can really change the equation. The problem here for MS is growth. Their operating system and Office applications are where the money is, nearly all the money. Google’s Apps will threaten their cash cow Office franchise but the days of corporate acceptance of hosted applications for day to day business are still a ways off. It’s the operating system that is a problem, a big problem.
Apple is starting to make little inroads into acceptance in the corporate IT mindset, in part because Vista is a major failure and, in part, because it works great, is solid and quite resistant to malware, all critical issues for those IT people. Every time Apple takes a point of marketshare from Windows they not only add users for their software, they add a user for their hardware ecosystem (Macs, Exchange-compatible iPhone, Air), users MS will not regain. They are predicted to go from a 2% share of business users to 6% in the next few years. This is pure growth while MS is left trying to plug the leaks in a dam that could burst.
MS has always had a huge wad of cash on hand, in part because they have a poor record of profiting by acquisition- the Yahoo buy always looked like a desperate attempt to buy market share to me. But take a look at Apple- they have $19.5 billion in cash sitting around and that is growing each quarter. This would make a great warchest for a campaign to enter the corporate markets.
Finally, regarding advertising, which is what the search world is really about. There are no synergies between Microsoft’s desktop software business and their search business. Should they develop true hosted productivity applications like Google Apps they would be competing directly with Office. In both situations there is no growth model, the primary reason Ballmer should be shown the door- he has utterly failed to develop a strategy for growth which is his number one job description. Acquiring Yahoo was a last-ditch attempt to cobble together such a strategy. Net result:
- Google continues to grow in advertising and starts killing the Office business
- Apple continues to take market share with the combo of software and hardware
- Yahoo does ? (honestly I don’t know- their long term business model is equally blurry)
- Microsoft shrinks, possibly much faster than expected