Micro-Hoo: Shotgun marriage avoided; if only the old man would shut up

Over the last several months I've been watching the push-pull of the Yahoo-Microsoft negotiations, and getting more and more angry with Carl Icahn for his stupid bullying of Yahoo for its reluctance to jump in bed willy-nilly with Microsoft.

I want to tell Icahn to his face, "Shut the hell up and walk away; you have NO clue what you are doing."

He wants a shotgun marriage of these two technology companies, thinking in some twisted way that being technology companies is enough to assure compatibility and a rational price. It's not, and the uppermost management at Yahoo know that. Were they to take the Microsoft offer instead of working for better terms, Yahoo would cease to exist -- and there would be no viable alternative to Google.

That might make little sense to outsiders who aren't familiar with tech industry; they are likely to point to the Yahoo-Google search deal that followed on the heels of Microsoft's exit from the bargaining table. If this is all about building a better competitor to Google, why not team up with the mega-player Microsoft?

Because it's about competing with Google -- on those technologies where Google is clearly not a leader.

Microsoft tipped its hand when a secondary offer for Yahoo business targeted its search technology only; Microsoft knows its search business, Microsoft Live, sucks. Yes, sucks. Let's be blunt about it; the traffic data for website I'm managing shows that Live only garners 3.5% of searches, with MSN search only 3%. Yahoo brings in 18% of traffic, and Google brings 74%, including nearly all of international search traffic. The meager remainder is spread across other search tools, which may or may not use Google's or Yahoo's search algorithms rebranded under a different label.

Microsoft wanted two things: search technology, and the existing market that Yahoo brings with it as a Google alternative and as an established brand. That's it. They didn't want much else, although they'd figure out how to wind it into its existing brands somehow, as it has other small acquisitions over time.

But Yahoo already knew that selling its search technology would result in the death of the rest of the brand; the IT industry hasn't kiddingly referred to Microsoft as "the Borg" for nothing. Was the death of the brand and the independent corporate culture of Yahoo worth it? They didn't think so.

Yahoo also realizes that its business model has changed, and that it does not have the competitive edge in search technology any longer. It's not the first time this has happened in the life of the internet; remember AltaVista? At one point it was the end-all, be-all of search engines. But when was the last time you used it? According to my site's traffic data, not any time in the recent past. Yahoo has been dealing with this truth and trying to deliver consistent improvements on its bottom line to shareholders, while trying to improve its position as a search engine. Unfortunately, Yahoo can't do both at the same time; it has to concentrate on what it does best to make money, and look towards investment in areas where it can be a leader and not a follower. It's recognized it doesn't have the best search technology, and that an amalgam of its search tools along with Google's search technology could be a win-win. It allows Yahoo to increase earnings through improved search results for users, while concentrating on the business components that users prefer about Yahoo over any other competitor.

In other words, Yahoo is returning to its roots as a portal -- which is what Google hasn't yet become.

This seems pretty transparent and obvious to me; many businesses take this tack in downturns, returning to their core competencies in order to concentrate on what they do best. Which makes me wonder why Icahn has his shirt in a knot, having one hissy fit after another about Yahoo's board rejecting Microsoft's offers.

Clearly, Icahn is looking at this only for the money, one bloodsucking leech who doesn't grok Yahoo's situation. And clearly Icahn could give a rat's behind about Microsoft except as a source of cash that Icahn wants his hands on, not as a long-term investment.

Because if Icahn were really in touch with reality, he'd see that Yahoo also doesn't want to hitch its struggling star to a business whose model is in its death throes. Microsoft is failing at its efforts to become an internet company, as its Live search shows. Its management is struggling with moving from the desktop to the cloud, even though it owns a big chunk of technology all along the transition from desk to server. They've now spent years -- millions, maybe billions -- on this effort, and they've also realized it may be cheaper to simply buy what it needs and retrofit than to continue to build from scratch. Microsoft as a culture has always been better at subsuming than the build from scratch; Windows and Vista offer examples, with Windows based upon previous efforts of other entities like Apple, and Vista being homegrown. (Vista has been a failure in the marketplace, resulting in Microsoft's extension of Windows XP's sales and service lifespan.)

Again, Icahn either doesn't understand this, or refuses to do so, or maybe a bit of both.

In any case, Icahn is bad news for both Yahoo and Microsoft. Can you think of any shotgun marriage that was truly happy and successful for both the bride and groom?

Me neither.