The Microsoft/Yahoo Conundrum

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The proposed acquisition of Yahoo by Microsoft remains the story of the week. Knowledge@Wharton editor-in-chief Mukul Pandya and I interviewed Wharton management professors Larry Hrebiniak and David Hsu about the deal earlier this week. You can read the exchange, “Microsoft and Yahoo: Does It Make Sense (and Will It Work)?” at http://knowledge.wharton.upenn.edu/article.cfm?articleid=1895 or download an MP3 of the audio at http://knowledge.wharton.upenn.edu/audio/K@W_MS_Yahoo.mp3 or through Apple’s iTunes.

An article in Friday’s New York Times titled “Is It Too Late for Yahoo?” observes that when Jerry Yang assumed the role of CEO following the departure of Terry Semel, he inherited a long list of problems, including a demoralized work force and “a company that had grown bureaucratic and cluttered with too many projects.”

Of course, “bureaucratic and cluttered with too many projects” would also be an apt description of Microsoft. And this underscores the conundrum inherent in this deal. It is, I believe, a good deal for both companies — at least compared to the alternatives of continuing to compete against each other (while each competes with Google) or, in Yahoo’s case, looking for another partner.

But a key problem of both of these companies has been focus. They’re doing too many things with little overall coordination or integration. People like Ray Ozzie and Craig Mundie are working to develop a cohesive strategy for Microsoft’s myriad products, but that effort is, no doubt, akin to herding cats or playing Whac-A-Mole, with new issues popping up as rapidly as they’re being addressed.

Which gets us back to the main challenge of integrating these two companies. Microsoft will have to do what it does least well: focus.

The New York Times article cited above contains an interesting tidbit about Yahoo’s attempt to inspire its executives to better focus:

“Many other executives agreed that Yahoo had to focus on fewer things. To stress the point, Mr. Yang invited Steven P. Jobs, Apple’s chief executive, to give a pep talk to some 300 Yahoo vice presidents. Mr. Jobs told them that years earlier many Apple insiders wanted the company to compete with Palm’s personal digital assistants. Mr. Jobs said he decided against it, and noted that had Apple gone after Palm, it might not have been able to develop the iPod.”

Messrs. Ballmer, Ozzie, and Mundie will need to heed this lesson well as Microsoft incorporates Yahoo’s many initiatives into their company.

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