Would Merger Demote Yahoo?

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/03/AR2008020301100.html

Would Merger Demote Yahoo to a Microsoft Front End?
Analysis: The pairing gives Microsoft a needed outlet, but the outcome could quash Yahoo.
PC World
Sunday, February 3, 2008

While dealing logistically and technically with their overlapping online offerings will certainly prove troublesome ifits bid to purchaseYahoo succeeds, Microsoft will at least have an immediate outlet for bringing more of its traditional desktop portfolio to the Web and to a broader customer base.

Microsoft has been trying for more than two years to find a critical mass to adopt new online services beyond search, e-mail and instant messaging under the Windows Live brand -- with little success. Its early MSN e-mail and IM offerings are popular enough with Web users; however, users of Google and Yahoo online services have been loathe to adopt the revamped Windows Live offerings in favor of the ones they're already using.

Not only could that change if the company purchases Yahoo, but Microsoft also will have a ready-made Web front end for rolling out more of its desktop applications as services, said Paul Fox, CIO of Guy Carpenter, a New York-based reinsurance company.

"The Yahoo platform is really what they're buying," he said. "With Yahoo they're tapping into the base culture of the Internet online community that's matured over the last 10 years. It's going to make it easier for people to take a look at and try their services, whereas before it had to be a more conscious effort."

Aside from the usual raft of consumer applications like search, e-mail, maps and the like, Microsoft already has brought some of its many business desktop applications -- such as Office and CRM -- online in hosted, though often scaled-down, versions.

Access to Yahoo's estimated 500 million visitors per month will give it a new channel to deliver what the company now calls its "software plus services" strategy, as well as buy the company time to bring more competitive versions of applications that were originally coded for the desktop to the Web.

Indeed, in the conference call discussing the Yahoo bid Friday, Microsoft CEO Steve Ballmer made a pointed reference to efforts toshed its desktop legacyand move even aspects of its Windows OS to the Web, a trend the company started with some features in the latest version, Windows Vista.

"The Windows user wants to be live, the Windows experience needs to increasingly embrace the Internet," he said. "There will be a Windows Live, there will be an Office Live, as we continue to bring out innovations in which Office transforms and is transformed by the Internet."

Ballmer also likely had the rising popularity of Web-hosted productivity software such as Google Apps, Zoho and Yahoo's Zimbra in mind when considering how to Web-enable Microsoft's desktop software. So far, Microsoft's Office Live has been more of a way for small businesses to get up and running with a Web site and basic hosted business applications like accounting and CRM; however, bringing a full productivity suite to the Web has been Microsoft's plan for some time.

Microsoft also can leverage its own strength among business customers to bundle and technically link applications so customers buy an all-in-one package rather than individual products. For instance, Microsoft has created tight links between a new unified communications product, Office Communications Server, and its Office and SharePoint collaboration software so customers must buy them all together to create comprehensive infrastructure. Microsoft can make similar attachments between online versions of its applications -- or just bundle them together in creative ways -- and market them to a broader audience.

"If Microsoft does something well, it's bundling products and services," said Ned May, director and lead analyst of marketing research firm Outsell. He joked that if Microsoft purchases Yahoo, there might come a day when you start up Windows and "up pops Yahoo and it takes you three days to remove that functionality."

"Yahoo provides a platform in many regards -- an audience of 500 million people to which you can bundle products and new offerings," May said.

Doing quick math, May figured that at "500 million a month for about $44 billion" it will cost Microsoft about $86 a head for acquiring each member of its new audience of Web users. "Not a bad deal," he said.