Could Yahoo be fixed and thrive as an independent company? I think it could, but now we'll probably never know, because Microsoft wants to buy it. There are reports that private equity firms, and possibly News Corp, also want to bid (link). Even Google has supposedly offered to help (link). But by declaring its desire for Yahoo, Microsoft has basically acknowledged that its own Internet business is failing. Now that Microsoft has said that in public, it has no choice but to outbid everyone else.
Which is a shame, because I think the combined companies are likely to fail. To explain why, I have to talk about the right and wrong ways to compete with an industry leader...
How to fight a leader
In my opinion, the best way to fight a dominant company at the top of their game is not to go head to head with them. You don't launch a competing line of mainframes against IBM in the 1960s, and you don't launch a consumer operating system against Microsoft in the mid-1990s. What you want to do is challenge them in a business they don't understand, or better yet an area where their own strengths make them weak. That's what Google did -- while Microsoft was focused on beating Netscape, AOL and the other first-generation Internet companies, Google quietly established a franchise in search advertising. It's now using this secure base to subsidize free online applications (and a mobile operating system) that compete with Microsoft.
Although Google's direct impact on Microsoft's applications business to date has been miniscule, Google's tactics will eventually present Microsoft with a Catch-22 situation: If it tries to hold the line on prices, its customers will gradually migrate away. If it matches Google on price, it destroys its own revenues.
Microsoft's response has been to try to get a piece of Google's advertising revenue. First it tried to build its own search and advertising business. Now that's failing, so it wants to buy Yahoo's to get critical mass.
The problem is that even with Yahoo, Microsoft will still be far behind Google in search advertising. Google has a huge lead, and is willing and able to spend lavishly to defend it if it has to. I think what Microsoft is doing is equivalent to leading an infantry charge uphill against an infinite number of machine guns.
If Microsoft really wants to spend $45 billion, I think it would be far better served by investing it to attack someplace where Google is weak.
Google's weaknesses
A dominant company's strengths are also usually its weaknesses. (For example, IBM was so deeply embedded in corporate big iron that it couldn't understand the PC business. Microsoft was so caught up in monetizing a computer platform that it couldn't picture someone giving away the whole thing.) Google's weakness is its beautifully managed and consistent corporate culture. Google hires only the best and brightest software engineers. It hires them young, so they can be molded, and it brags about screening them all for "Googliness." That consistent culture means it acts far more predictably than many technology companies, and it has very consistent blind spots.
One of Google's blind spots it that it can't tell the difference between usability and utility. Usability is the process of making software easy to learn without a manual or extensive training. Google is extremely good at designing for usability. Its interfaces are clear, uncluttered, and generally self-explanatory. Utility is the ability of a product to solve a major problem for a user. That requires the designer to get inside the head of the target customer, understanding not only his or her rational needs but also the emotional landscape. Google is terrible at designing for utility. It tends to attack problems that engineers care about, rather than normal people; and it often produces elegant technologies that don't engage people emotionally and fail to deliver the full solution they need. (If you want a great example of the difference between usability and utility, compare the old Google Video to YouTube. Google Video was cleaner and easier to use, but it was launched without sufficient content, and was about as emotionally engaging as a slab of concrete.)
One of the best ways to compete with Google, then, is to focus on utility -- to create online products and services that solve real problems for customers, and address both emotional and rational needs. That's what Amazon is doing with Amazon Web Services (although in this case the customers are developers rather than consumers.)
There are many, many more opportunities to create high-utility Internet applications. What you need is a critical mass of bright engineers, a product management culture that understands how to design for utility, and senior management that focuses the company on its best opportunities. Designing for utility takes more resources than just tossing a product out there, so management must restrict the number of projects the company undertakes.
Yahoo has plenty of bright engineers, and I think it understands utility better than Google. Ironically, Yahoo's attempt to make itself into a media company probably helped here, because it forced the company to learn about engaging people emotionally.
What Yahoo has lacked, in my opinion, is the awareness that it's actually a products company, not a media company; and the management discipline to focus on a small number of initiatives.
Will a buyout by Microsoft fix those problems? I don't think so. Microsoft itself isn't great at designing for utility. Mostly, it focuses on copying and adapting things that have been developed by others. One of the most depressing documents I've seen on the Web recently was the alleged plan for Windows Mobile 7 (link). Assuming that the plan is genuine, it shows that rather than trying to do something new in mobiles, Microsoft is slavishly trying to copy and "improve" on the interface of the iPhone (so, for example, rather than just using finger touches you can also shake the phone to make it do things). This comes after Microsoft spent the last couple of years trying to copy RIM, and before that Palm.
Even the bid for Yahoo is driven by Microsoft's desperate desire to copy and co-opt another company's business model. That's exactly what Yahoo doesn't need. Rather than focused management that can pick out the most disruptive embers in Yahoo's portfolio and fan them into bonfires, Yahoo is likely to get layers of well-meaning ROI analysis, a distracting flood of resources, political integration hassles, cultural conflicts, and a mandate to "concentrate on the core."
The process will probably strangle Yahoo and distract Microsoft. I really hope I'm wrong, but I think there's a very good chance that the merger will be the beginning of the end for both companies.
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How to beat Google (and why Microsoft + Yahoo probably won't do it)
Senin, 04 Februari 2008
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