Upside Elusive in a Microsoft-Yahoo Deal

Microsoft wants to buy Yahoo to compete with Google.
Microsoft wants to buy Yahoo to compete with Google. (By Nelson Ching -- Bloomberg News)
By Rob Pegoraro
Thursday, February 7, 2008

Microsoft's proposal to buy Yahoo for $44.6 billion raises many questions. Will Yahoo accept the offer? Can Microsoft win the approval of antitrust authorities in the United States and the European Union? Can the company digest an acquisition this large without suffering an AOL-Time Warner-like meltdown?

The biggest unknown may be this: Where the two companies' Internet sites and services overlap, which one would survive a buyout? We can't assume that the best contender would win, given all the institutional politics involved in any multibillion-dollar merger.

We can, however, try to rank their offerings. Doing so might also give us insights into another question behind this proposed acquisition: Would adding Yahoo to Microsoft do anything to improve things for their customers?

Seen that way, a couple of patterns emerge. On one hand, Microsoft has done some terrific work, but has trouble keeping things simple and deciding whether its Web properties should protect its Windows empire first. On the other hand, Yahoo doesn't suffer from any confusion about its mission but can't seem to stay focused on delivering useful sites.

Consider one of the basic jobs of any Web site: finding things online. Both Yahoo and Microsoft's Windows Live Search handle many everyday searches as well as Google, Ask or any other search engine. But once people have the habit of directing their queries to one search engine, why would they want to waste time with a just-as-good contender?

Some of Microsoft's more-specialized search tools, such as a variety of ways to focus searches on particular sites or types of data, work notably better than Google's and Yahoo's. The best of these is Microsoft's Live Local Maps, which offer such helpful options as views from a few hundred feet above the ground that complement the usual satellite and aerial photos from much higher up.

But when you try a query at the main Windows Live Search page, some of the extras are hidden behind sub-menus or generic headings.

Free Web-mail services from Yahoo and Microsoft each suffers from its own problems. Microsoft's Windows Live Hotmail, the descendant of the first popular Web-mail service, is smoother and faster than Yahoo's ad-laden site. But one of its best features, the ability to download e-mail to a computer for offline reading, is restricted to computers running a recent version of Windows.

Yahoo, meanwhile, looks as if it's still trying to digest the Web-mail technology it got when it bought a company called Oddpost about four years ago. Even as Yahoo has woven extra features such as instant messaging and a calendar into its Web mail, it hasn't made its site appreciably faster to use.

Then there's social networking, one of the fastest-growing categories on the Web. Yahoo's vast base of Web-mail users ought to give it a commanding lead, but it offers only a patchwork of disconnected services. The best of them, and Flickr, are arguably the best bookmark-sharing and photo-sharing sites around-- but both have had only minor upgrades since Yahoo purchased them years ago. The company hasn't had anything to offer bloggers since it inexplicably mothballed its Yahoo 360 site last year.

Microsoft has a solid portfolio of sites that let you share photos and bookmarks and post blog items. But none of them has attracted the kind of consistent use and even devotion of a Flickr. Some, such as its Windows Live Photo Gallery, function largely as extensions of Windows XP and Vista.

It's not that these companies are incapable of running simple, flexible and open Web services. Look at their instant-messaging networks, which the two integrated a year and a half ago. A Yahoo Messenger user can now type back to a Windows Live Messenger user as if both were using the same program, and vice versa.

That kind of co-existence represents the best-case scenario for a combined Microsoft-Yahoo, in which users would get a broader range of services but wouldn't have to switch programs or accounts. But an enormous number of things would have to go right for that to happen, and the records of these companies running their own Web properties don't allow for much confidence.

Combining the resources of Microsoft and Yahoo might help them build a more effective online ad-sales organization, and that's one of Microsoft's most important goals in its proposal.

But when you look at the most popular services and sites people use, it's harder to see the upside of this proposed deal.

Whatever is missing from each of the company's services, can shoving these two organizations into a blender provide the absent ingredients? Or would it just let the worst habits of each firm prevail?

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