Three reasons a Microsoft – Yahoo merger would be a disaster

Who would benefit most if Microsoft (MSFT) buys out Yahoo (YHOO)? Google (GOOG), that’s who. Because that’s where most of Yahoo’s independent-minded engineers would go looking for new jobs.

That’s because of the many reasons a Microsoft/Yahoo marriage wouldn’t work. Here are just my top three:

1. Yahoo executives don’t have the credibility. Yahoo CEO Terry Semel isn’t leading from a point of strength; many on Wall Street don’t expect him to last long unless Yahoo’s search advertising results improve significantly in the next couple of quarters. Mergers are hard enough for two companies that have the full confidence of their investors and employees – and Yahoo doesn’t have that at all. At a time when experienced engineers are in high demand in Silicon Valley, there’s no reason for Yahoo’s most prized Web development talent to stick around and see where they’d fit in a Microsoft-dominated future. If Yahoo loses those engineers, it looses any competitive edge.

2. Microsoft is a poor fit for today’s Silicon Valley culture. At a time when the Silicon Valley zeitgeist is very much about openness and collaboration, Microsoft represents the old platform mindset that “We’ll force you to do it our way because we own the operating system.” Consider Microsoft’s attempts to use Internet Explorer to force the world into its video formats and Web development platforms. (Thank goodness for Adobe (ADBE) Flash, or we’d still be figuring out how to consistently view and share video on the Web.) Microsoft’s reputation for trying to force its platforms on the rest of the world puts it at odds with the whole Web 2.0 mash-up mindset. And Yahoo’s success on the Web will be determined by its ability to tap into the Web 2.0 spirit more, not less.

3. The core priorities of Microsoft and Yahoo are at odds. I believe companies tend to care about two things, in this order: First, their products that bring in the most money today. Second, their products that promise to grow the fastest. That means Microsoft cares first about its platforms and applications – Windows and Office. Yahoo cares first about building its online audience – getting people to spend more time clicking through Yahoo Mail, News, Groups, Answers and so on. Both Microsoft and Yahoo see that online advertising platforms and partnerships are the future, and they’re both concerned about Google – but for both of them, their top priorities lie someplace else. A marriage based on the secondary priorities of both parties rarely works – both sides end up merely tolerating each other to support their personal agendas.

For those following the Microsoft/Yahoo news, below are some relevant figures for the month of March that I just received from Web metrics firm Neilsen//Netratings.

Table 1: Parent Company Unique Audience (U.S., Home and Work)

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| Parent Company | Unique Audience (000) | Mar-07 Rank |

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| Microsoft | 119,642 | 1 |

| Yahoo! | 108,453 | 3 |

| Unduplicated Audience | 135,541 | |

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Source: Nielsen//NetRatings, May 2007Table 2: Top 3 U.S. Search Providers for March 2007

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| Search Provider | Searches | Share of |