Microsoft and Yahoo! (and Adobe)

Microsoft and Yahoo! (and Adobe)

The blogosphere will be all abuzz today about Microsoft’s offer to acquire Yahoo! this morning. It will be interesting to watch people tally the pros and cons on this one. Here are my initial thoughts.

Yahoo would provide Microsoft with valuable online properties in a number of major categories: Flickr for photo sharing, Yahoo Finance, Yahoo Personals, and so on. Microsoft has never been strong in online content development, and Yahoo’s properties would instantly establish them in several markets.

As you might expect, a number of the statements in the Microsoft press announcement refer to search and online advertising:

“Today, the [online advertising] market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative.”

Maybe. Combining their search initiatives is probably more beneficial than competing against both each other and Google. Although it’s not clear that two struggling strategies for search and advertising are better than one.

Both companies also have similar problems of focus. Yahoo provides something of a hodgepodge of online properties and has struggled to make the whole equal to (much less exceed) the sum of its parts. And, despite the efforts of people like Ray Ozzie, Microsoft has found it difficult to integrate its many products into a cohesive architecture or product strategy.

In addition, I suspect Microsoft will have a challenge trying to integrate Yahoo personnel into the company. Microsoft and Yahoo have very different corporate cultures that won’t be easy to meld.

One company that may suffer some collateral damage if the deal goes through is Adobe Systems, which has benefited from a long-standing relationship with Yahoo. Adobe previously distributed the Yahoo Toolbar in conjunction with its free Adobe Reader (and, I suspect, gained significant revenue from doing so). Yahoo Search was the default search provider in Adobe Reader 7.0. And Adobe and Yahoo recently launched a new advertising service to place contextual ads in PDF documents. Yahoo has also showcased a number of key Adobe technologies. Yahoo Maps is in Flex. And, as Ryan Stewart recently noted, Yahoo recently released its ASTRA toolkit of Flex components for developers.

If the deal goes through, expect all this to end as soon as contractually permissible. I suspect we’ll see more Silverlight than Flex development from Yahoo once the new owners take possession.

If I were Adobe, I might drive up US 101 today to have a free lunch at the Googleplex and get to know my new best friends.

[Updated : 

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