Foley on Microsoft

If MicroHoo Goes Through, What Then Should Microsoft Do?

A hypothetical to-do list for Microsoft's hypothetical Yahoo takeover.

• By Mary Jo Foley
• 03/01/2008

Nevertheless, turn the clock forward and put yourself in CEO Steve Ballmer's shoes. Say the Microsoft takeover of Yahoo! goes through. What must Microsoft do next to wring the maximum benefit from MicroHoo?

Remember Microsoft has been pouring close to a billion dollars a quarter into its own Online Services Business, yet has had no luck growing its Web-search share. Even though the Redmondians have been hinting they're interested in trying to decouple search share from online advertising by introducing "conversion-attribution" tracking technology, search and online advertising are joined at the hip for the foreseeable future.

Microsoft has had limited success with its "Live" online services, but abysmal branding has taken its toll. Microsoft's adCenter and aQuantive online-advertising platforms have won some converts, but still pale next to offerings from competitors like Google and DoubleClick.

Add Yahoo! to Microsoft -- now what? If I were Ballmer, here would be my immediate to-do list (in no particular order of priority):

1. Spin out MicroHoo as an independent subsidiary of Microsoft, based in Yahoo!'s Sunnyvale, Calif., headquarters. Make it clear to Yahoo! employees that they're not moving to not-so-sunny Seattle.

2. Move Microsoft's Windows Live, MSN, Office Live, Dynamics CRM Live and Xbox Live teams into this division.

3. Appoint former aQuantive CEO (and current Microsoft Senior Vice President) Brian McAndrews as head of the MicroHoo subsidiary.

4. Kill off the Live Search product and brand. Make Yahoo! Search Microsoft's default Web search brand across all products (in the name of greater network efficiencies).

5. Kill off Yahoo!'s Panama online-advertising platform and transition customers to Microsoft adCenter, also in the name of network efficiencies.

6. Promise Yahoo! and Microsoft's consumer customers that Microsoft won't pull the plug on either Yahoo! or Microsoft Windows Live services. Keep Yahoo! Mail and Windows Live Hotmail alive, as well as Flickr and Windows Live Spaces photo services, Yahoo! Messenger and Windows Live Messenger. This is exactly what Microsoft has done on the enterprise side by maintaining four different ERP product families -- Axapta, Navision, Great Plains and Solomon -- while slowly making them look and feel more alike.

7. Don't automatically move Yahoo!'s data center infrastructure from its current Linux/open source foundation. Get your Linux Lab employees in there and study how Yahoo! has been running its services businesses. If they're doing it more dependably and cheaply on a non-Windows/.NET stack, let them stay there -- at least until you can incorporate the lessons learned into your own datacenter platform.

8. Ditto with the various open source-software projects in which Yahoo! employees are participating. Don't root them out. Instead, celebrate them and prove that Microsoft really is as serious about facilitating open source/closed-source interoperability as the Softies have been claiming.

9. Institute a "We're No. 2, but we try harder" campaign to win over publishers and advertisers tired of the Google stranglehold. Play the underdog. Don't be afraid to pull an Apple by publicly lambasting your Goliath-sized competitor.

10. Stick with your Software plus Services pitch, despite pressure from over-zealous Wall Streeters, venture capitalists and pundits who think Windows' and Office's heydays are long over. Yahoo!'s stable of offerings is a nice adjunct, not a replacement, for your core businesses -- at the very least through the end of this decade.

If you were Steve B., what would you do if you had a chance to run MicroHoo?