YaMicrhoosoft The next big thing? Get a Grip

The $44.6 billion deal is the biggest in tech history, but this writer feels oddly uninterested.

Microsoft's proposed acquisition of Yahoo! is by far the biggest deal ever in the internet business, but as an internet entrepreneur I find it strangely uninteresting. Google's surprisingly forthright efforts to get the deal blocked by regulators – or even to help Yahoo! find alternatives – may make for some colourful corporate manoeuvring, but the deal is very likely to happen. It just won't change the competitive dynamics very much.

The logic of the combination is simple enough. Microsoft has always struggled with search and the online media side of its business and is getting its clock cleaned by Google, and it has the cash to buy market share. Yahoo! also has no convincing strategy for competing with Google, and the lack thereof has made it cheap enough to be bought – and desperate enough to sell.

But it's not as if either Microsoft or Yahoo! lack the resources or the scale to compete with Google, so it's not at all clear why they would do better together than they did separately. Moreover, in the time it takes Microsoft and Yahoo! to clear regulatory hurdles, close the deal, integrate a wide variety of complex product and service offerings, and meld two very different corporate cultures, Google will be going about its business of building better mousetraps.

Mega-mergers, historically, don't work very well, in part for these very reasons. Running big companies in hotly competitive, fast-growing industries is hard enough without the numerous distractions involved in a big merger. There will certainly be efficiencies in the combination, and if Microsoft manages things well it could ultimately be a marginally stronger rival to Google in online advertising. But it's just as likely that focusing internally on the merger, rather than externally on the market and consumer needs, will undermine any synergies.

There is some grumbling in Silicon Valley that the merger will be bad for entrepreneurs and the little guys, because there will be one fewer buyer of hot start-ups. Google is trying to tap the ill-will Microsoft generated in the 1980s and 1990s with its monopolistic practices, and claims that the deal will undermine openness and innovation on the net.

But I don't see it that way at all. For one thing, as I've written in this space before, it's in the interest of everyone in the internet business that there be at least one viable rival to Google. As noted, I'm sceptical as to whether this merger will make that state of affairs more likely, but it might, and that wouldn't be a bad thing.

More importantly, though, I'd rather have the behemoths of the business focusing on one another, and not on the many, many unexploited opportunities that remain in the online media business.

http://technology.timesonline.co.uk/tol/news/tech_and_web/the_web/article3307589.ece