Google forces Microsoft's hand

[Michael O'Dell]

the Yahoo deal is an act of overt desperation.
Gates left the bridge in plenty of time for it to
be firmly on Ballmer's watch when they discover that
the G/S Microsoft has been fatally holed.

Ballmer is looking at an epitaph reading"

	"He managed to sink Microsoft."

and he is scared shitless.

I will give him points for being scared -
at least the lizard brain is still functioning.

	-mo

ps - G/S is "Garbage Scow"


andre kesteloot wrote:
>   International Herald Tribune <http://www.iht.com>  Google forces 
> Microsoft's hand By Steve Lohr
> Saturday, February 2, 2008
> 
> Bill Gates, Microsoft's chairman and global philanthropist, called upon 
> fellow business leaders at Davos last week to pursue a kinder form of 
> capitalism.
> 
> But on Friday, the brand of capitalism practiced at his company by the 
> company's chief executive, Steve Ballmer, came with a decidedly hard edge.
> 
> The $44.6-billion bid for Yahoo, led by Ballmer, was hostile. And during 
> a conference call on Friday with analysts and in a subsequent interview, 
> he never once uttered the word "Google," alluding to the Internet search 
> giant that has humbled Microsoft only as "the leader" in the online world.
> 
> Ballmer, 51, is a famously fierce competitor. To him, failure is never 
> an option. "If we don't get it right at first, we'll just keep coming 
> and coming and coming and coming," he said in an earlier interview.
> 
> Microsoft's bid for Yahoo is thus a tacit, and difficult, admission that 
> it didn't get its online business right. The takeover attempt also 
> represents a sharp departure from Microsoft's well-thumbed playbook of 
> building new businesses on its own.
> 
> In the past, when Microsoft moved beyond its stronghold in desktop 
> personal computer software - and into areas like Xbox video games and 
> data-center software - it has done so mainly with in-house investment, 
> patience and tenacity.
> 
> Microsoft stuck to that formula for years in the online business of 
> Internet search and advertising - without success. It did purchase an 
> online ad agency, aQuantive, last May for $6 billion, a sizable move for 
> Microsoft given its tradition of making small, niche-filling acquisitions.
> 
> But losses continue to mount in Microsoft's online business, while 
> Google makes billions in profit.
> 
> The Google challenge to Microsoft extends beyond online search and 
> advertising. Google is at the forefront of companies offering software 
> as a service over the Internet, including Web-based alternatives to 
> Microsoft's lucrative desktop products like word processing, 
> spreadsheets and presentation programs.
> 
> Gates, Microsoft's largest shareholder, has said that Google is the 
> company that most reminds him of Microsoft in terms of its broad 
> ambitions and demanding corporate culture. Gates, who is spending more 
> time on philanthropy these days, blessed the Yahoo bid, but it is 
> Ballmer's brainchild.
> 
> And Ballmer clearly views the Yahoo bid, and the Google threat, in broad 
> terms. A Yahoo deal, he said, would represent "the next major milestone 
> in Microsoft's transformation."
> 
> Microsoft, too, is moving to offer more software features as Web-based 
> services, though it sees a future that revolves around both personal 
> computer software and online services. Microsoft calls its approach 
> "software plus services."
> 
> Ballmer said Friday that analysts who regard it as a grudging, defensive 
> tactic underestimate the company's intentions. More and more of the 
> software capabilities of the Windows operating system and Office 
> productivity programs will be offered as online services. Buying Yahoo, 
> he said, would be a big further commitment in that direction.
> 
> "Ballmer is absolutely determined to move Microsoft from the old model 
> centered on personal computer software to the new model where software 
> is increasingly an online service," said George Colony, chief executive 
> of Forrester Research.
> 
> Microsoft has been forced to adopt a new strategy for a different kind 
> of threat than it has confronted, and usually dispatched, in the past. 
> "This shows just how worried Microsoft is by Google," said David Yoffie, 
> a professor at the Harvard Business School. "Microsoft has faced 
> competitive threats before, but none with the size, strength, 
> profitability and momentum of Google."
> 
> In the conference call, Ballmer conceded that Microsoft needed a big 
> move to try to catch up in the online business to the big competitor 
> that he notably declined to name. "The market continues to grow and the 
> leader continues to consolidate position," he said.
> 
> Microsoft, analysts say, finds itself in a battle where improving its 
> search algorithms and online ad software is not going to be enough. 
> Google has impressive technology, to be sure, but it also enjoys the 
> torrid growth that falls to the leader in highly networked businesses 
> like Internet search and ads.
> 
> Google's edge in search traffic then attracts more advertisers and Web 
> publishers, so there are more ads in Google's auctions, which makes them 
> more efficient. Each advantage reinforces the other, in what economists 
> call "network effects."
> 
> One measure of the network advantage, analysts estimate, is that Google 
> collects 40 percent to 100 percent more revenue per search than either 
> Yahoo or Microsoft.
> 
> Microsoft, of course, is no stranger to the power of network effects. It 
> was the master of that strategy in the personal computer era. Its early 
> lead in PC operating systems, and its efforts to encourage independent 
> software developers to write applications for Windows, paved the way for 
> Microsoft's dominance.
> 
> More programs ran on Windows than on any other operating system, so more 
> users bought PCs running Windows. Apple, by contrast, never built up the 
> developer network as Microsoft did.
> 
> In the Internet era, network effects are working against Microsoft in 
> its competition with Google.
> 
> With the Yahoo bid, Microsoft, analysts say, is trying to buy a big 
> enough share of the market to be a credible alternative to Google with 
> online advertisers - "a competitive and compelling No. 2," as one 
> Microsoft executive put it.
> 
> In the most recent quarter, Microsoft had online revenue of $863 
> million, compared with Google's $4.8 billion in quarterly revenue. Yahoo 
> and Microsoft together had more than $2.6 billion in revenue, still 
> trailing well behind Google but in a far stronger competitive position.
> 
> But the trends in online advertising are working to Google's advantage 
> as it continues to gain share. The more Google's momentum accelerates, 
> the more difficult it will be for Microsoft to catch up, no matter how 
> much it might improve its search technology.
> 
> While $44.6 billion is a hefty price tag, many analysts say it will be 
> worth it for Microsoft if it can close the gap with Google. On Wall 
> Street, Microsoft suffers from the perception that it is several steps 
> behind in the march toward the Internet future.
> 
> Microsoft, analysts note, has grown solidly for years, but investors 
> give it little credit. The software giant's stock price has long been 
> stagnant, despite its extremely profitable businesses. Its Office 
> division alone had quarterly revenues of $4.8 billion - equal to Google 
> - and an astronomical $3.2 billion in operating profits. Its Windows 
> unit is even more profitable.
> 
> "Microsoft needs to show that it is going to make the online business 
> work, and this is about shaking things up that needed shaking up," said 
> Charles di Bona, an analyst for Sanford C. Bernstein.
> 
> Ballmer agrees. He said he "personally thought long and hard" about the 
> Yahoo bid and eventually became convinced it was the "right path."
> 
> Asked whether the move amounted to an admission of failure of its 
> earlier strategy, Ballmer replied that some people might take that view.
> 
> "But I made the judgment that, for the long-term health of this company, 
> and for the long-term interests of our shareholders, that acquiring 
> Yahoo is a good thing," he said.
> 
> 
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