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.
Search and contextual advertising
Query serving costs are variable, and some marketing costs are performance based. But there are major economies of scale in:
- Web crawling. Those huge server farms are needed irrespective of query volume. It’s easier to compete in search overall when you can afford to do all the crawling you need.
- Indexing. Ditto. (Recent discussion of Google MapReduce quantifies this processing effort a bit.)
- Relevancy algorithm research. The challenge for relevancy algorithms keeps going up. Adversarial information retrieval is an ongoing struggle. Universal search and local search just multiply the challenge. Neither Microsoft nor Yahoo has consistently challenged Google’s search quality. A merged Microsoft/Yahoo, however, just might.
- User interface research. Some day search results pages will change, offering more useful user drill-down. And mobile-device search is a whole different interface challenge, for input (e.g., voice) and output alike. This is one area where I think a merged Microsoft/Yahoo could easily make major contributions.
- Advertising platform research. Unlike text search, which goes back to at least the 1980s, contextual advertising platforms were really introduced just in the current millennium. It’s still early in their life cycles, and a great deal of innovation is yet ahead, in all parts of the system. That’s true even on text-heavy Web pages, and it’s even truer on other platforms such as video and perhaps gaming. To see just how primitive the technology is right now, consider this: Google gets greatly more revenue per search than Yahoo or Microsoft, and there are only two reasonable explanations for the disparity – difference in the searchers/subjects, or technology. Surely to a large extent it’s the latter.
- Hand assists to search. These are more important than you might first think. Google manually reviews a number of possibly-spammy sites, both to adjust their rankings directly (and those of sites in link networks with them), or to learn of needed algorithm tweaks. In the future, it’s easy to imagine user “voting” on sites becoming crucial to search in a variety of ways; while it may not identify the best sites, at least it will weed out spammy/bad ones. But whatever the system, people will try to game it, and human intervention will be needed accordingly. Again, there’s a lot of potential in this area to make the world – or at least the Web – a better place.
- Marketing (partial). Marketing of search services seems to consist mainly of paying for placement, plus a whole lot of word of mouth. Neither of those is an obvious economies-of-scale cost center. But here’s the problem – Google is way ahead in the branding battle. Indeed, “to google” is a much-used verb. Microsoft, Yahoo, and/or Microsoft/Yahoo have a lot of branding ground to cover if – well, if they wish to recover. So if they ever do manage to achieve superior product to Google, an expensive advertising/sponsorship campaign might turn out to be a really good idea.
- Combining enterprise and web search. As I mentioned in my initial reaction to the Microsoft offer for Yahoo, FAST could be more important to the merged entity than is at first apparent. While relvancy ranking is a very different problem on the Web than in an enterprise, user interface issues are more similar. What’s more, there are potentially major benefits from truly integrating Web and enterprise search – again mainly on the UI side, but maybe in ontology leverage as well.
Email and antispam
Mail storage and serving costs, for the most part, are variable according to usage. Even so, there are important economies of scale in:
- Antispam. Google, perhaps due to the Postini acquisition, is doing a great job of antispam right now. Yahoo, however, is a disaster in that regard, with much legitimate mail not getting through at all. And antispam is an arms race, with new development constantly needed.
- General email software development. Antispam aside, online email software is still in sad shape. User interfaces, searching/filtering, and general stability are all problematic. Integration with client email software and other messaging is often even worse. Advertising potential is hard to monetize without unacceptable privacy violations. All told, there’s a lot of email software development ahead.
- Marketing. If it were easy to market online email services other than by word of mouth, more marketing would probably be happening. If the challenge ever gets solved, the solution may be expensive.
- Email integration with other messaging. As noted below, chat and social networking stand to be utterly transformed. What emerges will transform and perhaps even subsume email-as-we-know-it.
- Email integration with search. One of the worst things about email is its primitive filtering, both when it arrives and when you’re looking for it later. Google has taken the lead on email/search integration, but this will be a long race that currently still in the early laps.
Information portal and business intelligence
A few hundred thousand people rely on investment terminals such as Bloomberg or Reuters for their business news and general information. They’re pretty locked in. But the whole rest of the market is still up for grabs. Bill Gates’ “Information at your fingertips” speech was over two decades ago, yet Microsoft is still not doing great as a provider of information or analytic tools (with the huge exception of Excel).
One obvious synergy is to deliver tame MSN-style traffic to the more established Yahoo portal. A second is to finally get serious about making SharePoint an integrated Web/enterprise portal. A third, less-obvious one – and an area I really need to write a lot more about soon – is the integration of business intelligence tools with public data sources.
Gaming, virtual worlds, identity, and social networking
Social networking and gaming are both evolving at ferocious speeds. Just think of Facebook, Twitter, Scrabulous, Second Life, or console games. Some major and almost inevitable future developments include:
- Integration of instant messaging, group chat (IRC, Twitter), email, and perhaps other social networking, for both personal and enterprise uses. On both the client and server sides, there are good reasons for the functions to come together.
- Subscriptions or other monetization strategies that cover a broad range of casual gaming, virtual world, and possibly other online recreational activities. Consoles, and standalone games with tens of hours of play value each, seem to work well as products. Other recreation categories need other monetization models. And by the way, massively multi-player online (MMO) games are on the upswing even in categories where standalone games are also viable.
- Integrated identity. This is a huge subject, all the more as the number of services we want to participate in mushrooms. I think the technological part of the solution will wind up being XML-based (LDAP is in no way enough).
These are all big problems, where Microsoft and Yahoo actually gain from adding each other’s heft.
As long as the above list is – 19 items – it is far from complete. Please point out any you feel I overlooked. As for merger negotiations, antitrust, and eventual operational issues – I’ll leave those to another time. This post is long enough already. 😉
Related:
- Long Zheng runs through the Microsoft and Yahoo brands that would need to be combined.
- Google fear-mongers about Evil Microsoft.
- Charlene Li opines that Yahoo will fight the merger. (I think she may be underrating tired-founder syndrome.)
- Bill Burnham thinks the deal would be very bad for M&A prices.
- Edit: Follow-up re: implementation.
- Edit: Follow-up re: deal terms and likelihood.
Comments
15 Responses to “19 Microsoft/Yahoo synergies that could revolutionize the Internet”
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I can see huge potential for integration of social network data into factoring search engine results.
I would expect to see the option of search results with personalised biasing or weighting, based on multiple personalised data sources, including:
personal keyword relevancy cloud (could be based on keyword frequency from my email history for example)
integration of weightings from my social networks, factoring in the number of thumbs-ups assigned to sites by my contacts, friends, etc.
eg. StumbleUpon, Digg, Technorati.
Email filtering and searching remains a painful problem.
With over eight years of archived email and hundreds of thousands of messages, I’m heavily dependent upon the filtering capabilities and fast indexing/search functionality in Eudora 7.
No web based email service remotely comes close to speed of search and ability to view the progressive filtering reporting that Eudora provides me.
Gmail is starting to feature more in my day to day email activities. I have two Gmail accounts that I often log into and use, but I still pull all the mail down into Eudora for filtering and archiving as well.
I could never use Outlook in any of its previous or current versions. Something radical would have to change in Microsoft land for me to ever consider using their email software in any serious fashion. I do use Outlook for one administration account for one business I am supporting, just enough to remind me how much I don’t like using it.
Agreed that Eudora is much better for searching than Outlook.
Now if I could just remember how I made Eudora talk to Gmail, as I just am moving my other email domain over there as well … 🙂
I think re the social networking/search integration, that it won’t be all that simple. In effect, I think there will be a hybrid of DMOZ and Digg, as one of the most important kinds of social networking. I don’t know how fine the salami will be cut on that; in MOST cases, your close personal friends won’t have already searched for the sites that you need. Blogrolls are an exception to that generality, however, which is why I just registered the BlogrollPlus.com domain. 🙂
CAM
Great summary of synergies. The thing I’d like to add is the power that both companies can have in growing the size of the online advertising business within the advertising expenditures. If you know that today the total advertising business is worth 520 Billion dollars, the online part is only about 8% of that business and about half of that is search. Of course there is still enormeous growth in search but we shouldn’t discharge display advertising, just yet. Where is all the money from on branding campiagns on billboards, TV, buses, etc going to go when media managers will understand that consumers today are spending more than 20% of their media time online? Is it all going to go towards search? I don’t think so!
I think your premise is wrong. Yahoo brings nothing to Microsoft except smart people. Microsoft already has everything in place to take advantage of these email/web/marketing synergies. If Microsoft had the vision and drive to do any of this then they would have done so already. Nobody from Microsoft is going to listen to a bunch of Yahoo people (and probably most of the Yahooers are going to leave anyway).
Nate,
What you may be overlooking is that current levels of business ARE relevant — they affect how fast there’s hope of monetizing an investment. Similarly, they affect how many customer there are to retain via service enhancements.
And what you’re surely overlooking is that Yahoo actually has experience with user responses to their features in all sorts of areas where they have leading product — photos, finance portal, fantasy sports, bookmarking, and many more.
CAM
Good point Nate. I totally agree. I think this will be a big mistake for both Microsoft and Yahoo. I doubt Microsoft will allow Yahoo sufficent freedom to complete with Google. See my post at:
http://jeffspost.wordpress.com/2008/02/03/microsofts-yahoo-blunder/
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In a perfect world, maybe. What examples of big companies merging do you have where the whole actually becomes greater than the sum of the two as opposed to one eviscerating the other? An example where efficiencies are realized rather than a quagmire of mismatched systems and corporate cultures? How will Microsoft suddenly gain the deftness to manage the combined companies when its latest most critical product launch (Vista) has had the worst reception and greatest negative critique than anything that has come before?
This is nothing more than wishful thinking and pie-eyed enthusiasm. Tying the legs of two runners together does not make them faster. It slows them down and makes them clumsy.
Well, I must confess that Computer Associates’ successful acquisitions had a lot of evisceration in them — but in a variety of product categories they DID actually move the state of the art far forward (mainly those in system management tools). Oracle’s apps acquisitions are looking decent right now. Oracle’s RDB acquisition was a huge success — bigger than Oracle now likes to admit.
Is that enough examples, or would you like me to keep going?
CAM
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Nate,
I totally agree. While I think that the article makes good points about what could happen, Microsoft and its current top management have ALWAYS stated that its about the money. MONEY FIRST!! How can we make money from this.?
Google has as their motto, “Do no evil.” Its a couple of guys that are having great fun and making billions doing it. Google earth, google maps with satellite, google apps, google e-mail all for free, up front,. The anti-Microsoft and from the way they make profit, it must work.
The only chance that I see is that Microsoft has a new batch of sub execs below Ballmer. If they can make things change, then maybe there will be a chance for Microsoft. Otherwise, I am not having happy thoughts about this merger.
en
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