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ECommerceTimes.com

Gates: We Don't Need No Stinking Yahoo

By Erika Morphy
May 7, 2008 12:59 PM PT

A few days after the seeming culmination of its failed bid to acquire Yahoo for US$47.5 billion, Microsoft appears to be contemplating an entirely new Web 2.0 strategy: a partner-free, organic approach to besting Google.

Gates: We Don't Need No Stinking Yahoo

The news was delivered by none other than Chairman Bill Gates, who made the comments to reporters in Tokyo on Wednesday. "Now at this point, Microsoft is focused on its independent strategy," he said.

Leaving the Door Open

Whether this is the definitive last word on the matter is debatable: On Tuesday, Gates said that the company would not rule out partnerships, and on Wednesday, the Wall Street Journal reported that Redmond was sending out feelers to Facebook.

Indeed, it was expected that Microsoft would continue its strategy of one-off acquisitions in niche technology. That the software giant would forgo such deals is difficult to imagine.

More likely, Gates' interjection in the debate over Microsoft's future direction was meant to reassure the market that it does have a strategy. It also serves as a reminder to the market that going it alone was not the company's first choice.

Second Best

Indeed, Gates' involvement in the public discussion over the future of company he founded is in itself worth noting, Matt Eventoff, president of PPS Associates, told the E-Commerce Times. "For years, Gates has been saying he is stepping back from Microsoft's operations. The fact that he is speaking out about this instead of letting [CEO Steve] Ballmer do the talking is very telling."

No doubt Microsoft wants to send a strong message to the market that it can develop a viable Web 2.0 strategy on its own without Yahoo -- or any other player for that matter, Eventoff said. There may also be an element of damage control at play, he speculated. "I think Microsoft feels it needs to reassure shareholders and the market that it is thinking about its future strategy," he said.

"Microsoft spent three months promoting the message that it needs Yahoo to put it at the front of the pack," Eventoff continued. "Now, obviously, it needs to disabuse the image of not being at the front of the pack because it won't have Yahoo."

Underestimating Redmond

The market might need reassurances that Microsoft is up to the task, Richard Rabins, co-chair of Alpha Software, told the E-Commerce Times, "but there is no doubt it is fully capable of developing the necessary tools and applications to take on Google -- without anybody else."

Yahoo clearly would have assisted Microsoft in terms of distribution and awareness, "but Microsoft is a powerful company with a lot of resources at its disposal," Rabins said.

If Ballmer and Gates viewed the Yahoo acquisition as strategically critical, then Microsoft would have raised its bid, he remarked. "They have world-class developed tools for building online apps, and the majority of online apps are built on Windows. People overlook this."

Alpha Software uses Microsoft tools to develop its Web 2.0 database applications, which run on Windows servers, he noted.

Microsoft will start eating it's own dog food at some point, Rabins continued. "They are fully capable of delivering world-class applications over the Web. They have just not given it the type of investment and focus that they have given to other areas."

Microsoft will start to focus more of its resources to Web 2.0 development when sales of its desktop applications start to erode -- which has not happened yet, he predicted. "Google Apps are capturing the limelight, but companies are still buying Windows, and Office, and Microsoft servers and development tools by the boatload."

When Microsoft does decide to focus more on Web 2.0, social networking is an obvious starting point, N. Venkat Venkatraman, a business professor at Boston University, told the E-Commerce Times.

Microsoft has three options, he said: No. 1, pursue a stronger and deeper link with Facebook -- beyond what it has done with its equity investment; No. 2, pursue a link with AOL, while shunning MySpace, which competes more directly against Facebook; and No. 3, build an advertising engine as part of the Microsoft Windows Mobile OS "and lead in the arena that Google is trying to establish a lead in with Android."

Microsoft has more experience in dealing with the mobile ecosystem than Google, Venkatraman pointed out.

Still Playing the Game?

It's possible -- although only remotely -- that Microsoft is still toying with Yahoo, trying to get it to the negotiating table after comments made by Yahoo CEO Jerry Yang hinted that he was still open to considering a deal.

If that is true, "what is happening with these two companies is as fun to watch as the political theater," Eventoff said, referring to the long and winding Democratic presidential race.


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