Quick, what’s the worst merger idea ever? No, not HPW + CPQ — that merger is successful by most metrics, so shut yer piehole.
The correct answer would be Microsoft proposing to buy Yahoo for $50 BILLION.
Yahoo is a 2nd place company. Whatever cool stuff they might have done in the past all went out the window when Google IPO’d, and they’ve been trying to play catch-up ever since. They’re second place in search, in advertising, in web properties, and in mindshare. The only area where they are beating Google is with Flickr; everything else they own is lackluster and worn out, like the ‘85 Dodge Colt with pleather seats and no power anything that I inherited sometime during college.
Don’t get me wrong — 2nd place can still make a lot of money. The problem with Yahoo is that their 2nd place has the stink of quiet (or maybe noisy) desperation. They’re foundering and everyone knows it, sorta like when your drunk Uncle Verne and frigid Auntie Clara are having another domestic dispute — in the middle of your family reunion.
For Yahoo, getting bought by Microsoft is the best thing that can happen to them, since the only other way to beat Google is by being smarter than them, and that just ain’t gonna happen.
Now Microsoft, on the other hand, love them or hate them, they must be acknowledged as a top dog. They have a huge moat around their business (in the parlance of Buffet) in the form of Windows, Office, and developer tools like Visual Studio, and generate free cash flow like crazy. That’s the good.
The bad is that a high percentage of their other projects aren’t doing so hot. XBox is pretty cool, but Zune, Windows Live, WinCE, etc. are pretty dismal. They’re like a two-hit wonder, living off royalties from their successes during the big hair days in the ’80s, except that it’s now 2007 and they still have mullets and are wondering why Timbaland isn’t returning their phone calls.
Still, they’ve got a huge warchest, and there are still some pretty smart people working there, so they have a fighting chance — but not if they buy Yahoo. That would be the technological equivalent of making a sex tape with Paris Hilton. Sure, you’ll get a little publicity boost in the short term, but unfortunately for you, herpes is forever.
In case you’re too awestruck by my awesome metaphors and similes to understand my point, let me spell it out for you. Merging with a 2nd place company is the same thing as hooking up with someone who’s jumped the shark. This proposed merger would be horrible for Microsoft and their shareholders (and a nice act of charity for Yahoo).