MSN Needs Yahoo, But Will Yahoo Fold, Fight or Flee?

The news of Microsoft’s unsolicited offer to purchase Yahoo hit the Internet hard and has everyone from financial analysts to search marketing specialists discussing the impressive offer and speculating on Yahoo’s likely response. The truth is that Microsoft desperately needs Yahoo because Yahoo possesses what Microsoft can’t, despite its deep pockets, seem to get their hands on (a loyal community of followers).

The masses use Microsoft products and services because, unless you buy a MAC, it’s already on the computer you buy. The operating system along with a handful of other proprietary programs (or trial versions of them) all come pre-loaded. Microsoft has been cornering the desktop market since I can remember. And they had no trouble parlaying that into a lead in the browser market share. Remember the Netscape browser? It used to have the largest browser marketing share. But how did it fare against a competitor who’s operating systems, software, and browser was offered as the default for every PC sold?

But for Yahoo, the masses use it because it first offered a great new resource idea in the mid 90’s. Jerry and David’s Guide to the World Wide Web became Yahoo!, the news of the site with its categories and sub-categories of favorite sites spread and before they knew it, they’d created a fairly good group of loyal users. The massive directory drew Internet users and the community portal kept them coming back.

So Microsoft needs Yahoo’s audience and Yahoo’s developers in order to gain in the one area where they are not the dominating factor with my daily use of my personal PC–the Internet.

My work computer runs on Windows Vista and I use the Office Suite of programs every day at work. It’s no accident that Microsoft dominates my PC and it’s not because I’m a huge Microsoft fan. They’ve worked very hard over the last couple of decades to secure control in that market, shutting out competitors when necessary.

So I find it sickly ironic that Microsoft’s CEO, Steve Ballmer, tries to further entice the Yahoo Board of Directors with this warning in his letter:

Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers.

I actually had to read that twice to be sure I hadn’t misinterpreted what was being said, and about whom. I’m currently looking for the “biggest corporate hypocrisy” award-site because I’m sure I have the winner.

So Yahoo’s Jerry Yang, back in the CEO seat since last summer, and the Board of Directors have some choices to make. Here are their options:

Fold
Folding to accept Microsoft’s offer, or perhaps holding out to up the ante even higher, is the best course of action for Yahoo Board Members and shareholders. It’s the easiest way to walk away from a struggling company with cash in hand. And Microsoft has certainly sweetened the pot enough to ensure it will be difficult to turn down.

Fight
Fighting to remain an independent company is what Open Source proponents would like to see Yahoo do. The Microsoft name isn’t exactly synonymous with the word “open” and has never been associated with the open source development community at large. But Yahoo has.

Flee
Fleeing to another suitor might be something Yahoo considers as an alternative to folding or fighting. Rumors have been floating around since the first mention of a Microsoft-Yahoo merger nearly two years ago. Other suitors I’ve heard mentioned include IAC (which owns ASK and other web entities) and News Corp (which owns the FOX network, the Wall Street Journal and more).

Personally, I think they’ll fold, providing the regulatory agencies in the US and Europe allow it. Yahoo will cave in, at some point, reaching an agreement with Microsoft because it’s the best deal for the board and the shareholders.

However, I also think that it won’t work to gain Microsoft any brand-love. If anything, staunch Yahoo users are likely to go around closing accounts on Flickr and Delicious and Yahoo, just in anticipation of the thought of having to have a passport to sign into any of those accounts following the Microsoft-Yahoo merger. If anything, Google could see an influx of gMail users as Yahoo mail users jump ship, with visions of hotmail memories haunting them.

While I almost wish someone else would step up and offer Yahoo a viable alternative (someone other than Microsoft or Google), I’m not holding my breath. Microsoft’s made a high enough offer to ward off the competition.

So, if the merger is approved and the deal goes through, here’s my unsolicited advice to Microsoft:

1. Keep Yahoo! Search and the Yahoo! Directory and the Yahoo! Portal at Yahoo.com with the same purple look and excited feel and cross your fingers that a good portion of the Yahoo traffic doesn’t notice or care that Microsoft owns Yahoo. Put a permanent redirect on MSN’s Live Search page and a Yahoo! Search box at the top of the MSN portal. Then close the doors on the MSN Live Search endeavor forever.
2. Keep Flickr and Del.icio.us and Yahoo IM the same, too, for the same reasons and close work down on anything you have going in any of those directions as well.
3. Ditch both search advertising platforms and spend all of your resources and combined talent into developing an innovative new search advertising platform that could actually give Google a run for its money.

Unfortunately, Microsoft has a history of ruining the companies they acquire. So it’s not unlikely to worry that the only thing left of Yahoo! will be the purple exclamation point once Microsoft begins integrating the two companies. And somehow, Live! just isn’t going to get it.

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