As one of ex-Microsoftee ('86 to '00, Windows 95/98, IE3.0/4.0), I have been watching Microsoft's struggle against Google in last several years. Microsoft's offer to acquire Yahoo has triggered a string of thought in my brain, and this is the very first entry about this topic.
In the last decade, Microsoft made a lot of mistakes (such as not buying Macromedia, not letting Brad Silverburg own both IE and MSN, not releasing Netdocs as a pure web service, etc.), but it is very important to recognize that Microsoft made one significant business decision in late '90 - which allowed them to generate tens of billions of dollars of profit in last ten years - selling software to enterprise customers.
In late '90, Microsoft has recognized that they need to shift their focus to enterprise customers to generate more revenue from each PC. In other word, Microsoft has decided to make a few hundreds dollars per machine per year from enterprise customers, instead of making less than a hundred dollars per machine per year from consumers.
This business decision was very intentional, and this is exactly why Bill Gates gave IE to Jim Allchin instead of Brad Silverburg, because the success of enterprise version of Windows (Windows NT, Windows 2000, and Windows XP) was far more important than the success of MSN.
With this focus, Microsoft successfully generated tens of billions of dollars from Windows and Office in last decade, while letting Yahoo, eBay, Amazon and Google to grow their web business. Microsoft had MSN, XBox and Windows Media Center PC, but they are more or less "hedge", and never be the "focus".
While this strategy worked great in terms of revenue and profit, it has allowed two companies to grow too big to ignore - Google in web service business and Apple in consumer electronics business.
With that in my mind, it is very interesting to see how the acquisition of Yahoo would help or harm Microsoft. Is Microsoft trying to focus on consumer business instead? Not likely - they are making too much money from enterprise business today.
While it is not a bad idea to acquire Yahoo (it is actually a very good timing considering their struggle and stock price), Microsoft will loose all the great people (including Jerry Yang) if they try to integrate Yahoo into Microsoft because of the mismatch of culture and business focus (consumer vs. enterprise). If I were Steve Ballmer, I would immediately spin it out along with XBox and Live team, as a consumer electronics + service company, directly targeting Google and Apple.
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