February 13, 2008


Micro-Hoo! Is bigger really better? It all depends.

Microsoft aims to get bigger with its unsolicited $44.6 billion takeover offer for Yahoo. Facing its own troubles, Yahoo seems to be considering the offer but hopes to up the price from the current $31 a share to something closer to $40 a share.

Will a combined Microsoft-Yahoo work? Unlikely.

And here is why:

1. Two brands. Two cultures.

Microsoft and Yahoo don’t share the same sense of style. Steve Ballmer of Microsoft and Jerry Yang of Yahoo would make awkward dinner companions, let alone business partners. For a merger or takeover to work, the companies and brands should be as similar as possible. If not, expect a mass exodus of talent from the cooler firm.

Buying YouTube worked for Google because the two brands shared a similar love of white space and embodied a similar culture of renegade youth.

2. Two losers don’t make a winner.

Putting Sears and Kmart together didn’t help either company. Because the best strategy for Kmart has little to do with the best strategy for Sears. The combination of the two companies just made things more difficult, more complicated and more expensive to manage.

Putting Microsoft and Yahoo together is likely to face similar issues. For instance, what will all the products be called? Who will sell what? How will they manage the overlap?

Microsoft tends to put its name on everything: MSN, MSNBC, Microsoft Office, Microsoft Live. The only stand outs are X-Box and Hotmail, both of which have done well in spite of operating without the Microsoft name.

What is a “Microsoft” anyway? Bill Gates would probably say something like the “future of computing.” But customers don’t think in such general terms like “quality” or “state of the art.” Consumers think in specifics. Toyota is “reliable.” Nokia is “cellphones.” The iPod is “portable music.” Starbucks is “expensive” coffee.

In the mind, Microsoft is PC operating systems and personal computer software. Microsoft Windows is the operating system running 90% of the world’s personal computers, an impressive and powerful position. One that the company seems to take for granted.

A company that owns a dominant share of a market should think about launching second and third brands. Like Toyota did with Lexus and Scion. Like Gillette did with Mach3 and Fusion.

Instead of giving the consumer a choice of operating systems, Microsoft introduced a one-size-fits-all behemoth. The latest edition of this philosophy is Vista, an overblown, overly complex, mind-boggling system that is getting some pretty bad reviews. I’m currently running Vista, so I know the pain.

3. Chasing the future by expansion.

Google took over the search-engine category through focus and simplicity. Chasing the future by expanding your brand to include every new technology rarely works.

Google didn’t beat Yahoo by launching a website with more services and features than Yahoo. Google beat Yahoo by narrowing the focus to search only. (Today, of course,
Google is going in the opposite direction. A bad move.)

Microsoft and Yahoo probably wish they could turn back the clock to simplify and strengthen their strategies. But that rarely works. It’s like pulling out your prom dress to wear to your next corporate function.

4. Not a cool place to work.

Acquiring new young talent is always a problem for an old-guard company like Microsoft. Young people are not just looking for money. They also are looking for the hot brand to work for. Where you work has a big impact on your life, your ego, even your future mate with more people finding love in the workplace.

Companies with a strong, narrowly-defined brand are better able to manage corporate cultures and attract the right talent. Southwest has been around for over 30 years but they remain a cool place to work because they have stayed focused.

A combined Microsoft-Yahoo is going to have problems starting with the fact that Micro-Hoo is not going to be a cool place to work.

Micro-Hoo? Both companies would be better off going it alone. Valentine’s Day is about finding love and a long lasting partnership. Micro-Hoo is unlikely to find either and much more likely to be the next Bennifer.