Analysis of Microsoft’s efforts in the database management, analytics, and data connectivity markets. Related subjects include:

February 8, 2008

A game theorist’s view of Microsoft/Yahoo

Edit:  Microsoft/Yahoo could easily end up being an all-cash deal.

Larry Dignan encourages a game theoretic view of the Microsoft/Yahoo merger, following Trip Chowdhry. I actually have a Ph.D. in game theory, so I’ll bite. 🙂

In most negotiation games — including pretty much all in which money can change hands — there’s one outcome that makes the most sense for all concerned. They should agree to that outcome, and haggle about nothing except price.* In this case, the best outcome for Microsoft and Yahoo is a quick Microsoft takeover of Yahoo. That’s what I thought all along, due to a whole lot of Microsoft/Yahoo synergies. Michael Arrington reports, in confirmation, that there are no viable alternative bidders.

*A fancy way of saying that is “The feasible set has a continuous and effectively one-dimensional Pareto frontier.”

In such cases, the haggling over price depends a lot on each side’s “threat point” — i.e., their fallback position, and the (un)desirability of that fallback position for each side. Yahoo’s fallback position is probably one or more aggressive deals with other major internet players. Merely outsourcing its search business to Google would be stupid. Selling the search business to Google could fetch a wonderful price, because Google would be even more entrenched — but for exactly that reason, it would surely fail to pass antitrust muster. That’s why the Amazon idea that’s been floated is so crucial; a Yahoo/Amazon merger would actually be synergistic in its own way, and hence could command a price at least somewhat competitive with Microsoft’s offer.

As for Microsoft — despite successes in individual Internet areas, it has consistently failed to build a coherent Internet business. Yahoo has its own issues, obviously, but on the whole it’s maintained pretty decent Internet status even as its technological efforts have been consistently disappointing. If Microsoft doesn’t buy Yahoo, it probably needs to buy somebody else with a consistent record of Internet leadership, such as Amazon. That would also involve paying a large premium. And here’s a twist: If Amazon for any reason wants to sell to fellow Washingtonian Microsoft at a big premium, it’s best move may be to sabotage the Microsoft/Yahoo deal somehow.

One final note: If Yahoo outsources its search business to Google, the possibility of a Microsoft deal is gone forever. Microsoft can not be assured of winning a waiting game, the way Oracle outlasted Peoplesoft.

Bottom line: The Microsoft/Yahoo deal should and probably will happen, and Yahoo should and probably will be able to squeeze Microsoft for more money than has first been offered.

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February 5, 2008

Microsoft, Yahoo, and innovation

Bill Burnham argues that a Microsoft/Yahoo merger would drive down M&A prices. Marc Andreesen disagrees. His argument is essentially twofold:

  1. Microsoft and Yahoo were never more than a small part of the exit opportunity anyway.
  2. A merged Microsoft/Yahoo will be so slow-moving it will create more opportunities for competition than it destroys.

Andreesen certainly knows about slow-moving behemoths making wasted acquisitions; Netscape was acquired by two companies (AOL and Sun) that both dribbled away the parts they respectively acquired.* However, I think he and a lot of other observers are missing something this time — the Microsoft/Yahoo synergies are too large to ignore.

*The legalities of the merger were a lot more complicated than that, but in essence AOL got the “internet” piece of Netscape and Sun got the enterprise side.

Given the opportunity, here are some reasons I think integration would go a lot better than most people think: Read more

February 3, 2008

19 Microsoft/Yahoo synergies that could revolutionize the Internet

Many – perhaps most — commentators on Microsoft’s bid for Yahoo are thoroughly missing the point. The most interesting part of Microsoft’s bid for Yahoo isn’t the horse-race retrospective “How did they screw up so much as to need each other?” It’s not the incipient bidding war for Yahoo. And it’s certainly not the antitrust implications.

The Microsoft/Yahoo combination could revolutionize the Internet. I’m serious. The opportunities for huge synergies might just be enough to blast the merged companies out of their current uncreative, Innovator’s Dilemma funks. Search is open for radical transformation in user interface, universal search relevancy, Web/enterprise integration, and just about everything to do with advertising and monetization. Email stands to be utterly reinvented. Portals and business intelligence have only scratched the surface of their potential. And social networking is of course in its infancy.

Here’s an overview of where some synergies and opportunities for a combined Microsoft/Yahoo lie. Read more

February 1, 2008

Implications of Microsoft’s bid for Yahoo

As I write this, Microsoft has just announced an offer to acquire Yahoo. Early responses from the likes of Danny Sullivan, Henry Blodget, the Download Squad, TechCrunch, Raven SEO, Mashable, and others seem to boil down to:

I’ll try to be a bit more analytical than that, but this is still going to be quick. Assuming the deal goes through:

  1. Microsoft will recombine both parts of the old FAST/ Therefore, Microsoft will be able to use the same technology for web and enterprise search, to the extent that such commonality makes sense.
  2. I’d expect Microsoft to try to differentiate its technology via faceted/structured search. That’s a FAST strength.
  3. The old FAST search-as-BI dream might become pretty appealing to Microsoft/Yahoo.
  4. In a non-search point, Microsoft is strong in games and Yahoo is strong in fantasy sports. Look for some synergies.
  5. There sure would be a whole lot of non-Windows technology inside Microsoft. 🙂

Basically, Microsoft is a company that’s a lot more sophisticated in its thinking about user interfaces and experiences than Yahoo is. That’s where the really interesting competitive innovation would be most likely to occur.

January 8, 2008

More on Microsoft in enterprise search

Following up on my prior posts about Microsoft’s impending acquisition of FAST, they’ve now had the conference call. By custom and indeed antitrust law, such calls are very light on content. But here are a few tidbits and takeaways, all from Jeff Raikes of Microsoft:

  1. Jeff talked solely about FAST as adding to enterprise search, and rightly contrasted that with web search.
  2. However, he deflected questions about web search with “We aren’t talking about that much detail right now” rather than with a firm “Well, we aren’t allowed to use FAST that way.”
  3. Specifically, enterprise search is all about integration with SharePoint (portal).
  4. Jeff said Microsoft’s current search could handle millions or maybe tens of millions of documents, but thought there was demand for FAST’s ability to handle billions.
  5. He positioned FAST as an application development platform, giving an example of structured search (the actual word was “pivot”) in consumer electronics. … Well, at least he’s looking in the right direction.
January 8, 2008

Microsoft in enterprise search

Microsoft has certainly had a number of false starts in search. At the 1997 Verity user conference, a Microsoft employee told me of his confidence Microsoft would surpass Verity in enterprise search the next year. Yeah, right.

In September, 2003, a nice woman wrote me to tell me she had joined Microsoft and would personally write the ranking engine for MSN search. That worked out great too.

Now Microsoft has a multi-faceted enterprise search strategy. Guy Creese seems mightily impressed. Should we, for once, be impressed too?

Frankly, yes. So far as I can tell, most traditional text search products have atrophied, including Verity before it was bought by Autonomy. And I’m skeptical about Autonomy’s Bayesian-everything approach. Oracle and Google, in different ways, consistently fail to round out their products. So if FAST’s technology can ever be fleshed out and stabilized, it indeed could be a market leader or even dominator. Read more

January 8, 2008

Microsoft is buying FAST; what about FAST’s contractual prohibition?

As you’ve probably heard by now, Microsoft is buying enterprise search vendor FAST (Fast Search & Transfer). FAST wasn’t always focused on enterprise search; in fact, FAST built And when FAST sold to Inktomi, it agreed not to reenter the web search business itself. Inktomi was subsequently bought by Yahoo, a company not much inclined to do Microsoft any favors in the web search arena.

I look forward to hearing why this won’t be a problem.

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December 8, 2007

Windows Live search is rather different from MSN

Until the middle of this year, I got negligible search engine traffic from either MSN or Yahoo, or indeed any other search engine except Google. We’re literally talking a 90-95% share for Google, on each of my three main blogs, most months.

But in November, the Windows Live share was 19% on DBMS2, 29% on Text Technologies, and 41% on the Monash Report. And those aren’t blips; in each case there was steady August-November monthly growth. But on the other hand, early December month-to-date figures are all back down. Weird. Read more

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