Yahoo bid could backfire lest Microsoft changes ways

What are the risks of such a union?

But investing as much as the gross domestic product of some countries in one company could inspire Microsoft to "change its stripes" and rethink its own interests, he said.

To make the deal a true success, Microsoft also has to prove that it can let go of its entrenched Windows OS and desktop software culture, which had been the anchor keeping Microsoft from moving more quickly against Google and Yahoo in online advertising and services in the first place, Schmelzer said.

"The application itself is moving away from the thing that sits captive on your desktop to the thing that's distributed on the Internet," he said. "Microsoft has to rid itself of its '80s and '90s perspective -- which was great in the '80s and '90s, but now 80 percent of the value of the computer is not in the computer itself."

Microsoft had been moving in this direction before Friday's news, but has been burdened by its need to keep the customers of two of its biggest consumer products -- Windows and Office -- happy, as well as its enormous portfolio of enterprise and business customers. Instead of moving full bore into the Web, Microsoft had adopted a "software plus services" strategy as a nod to its software legacy and inability to move fully to a more services-oriented strategy because of it.

Still, some think an entire cultural shift isn't necessary for Microsoft to make the most out of the deal. David Mitchell Smith, vice president and fellow at Gartner, said Microsoft can leverage Yahoo successfully without changing its usual way of doing things, by keeping the brand and merging the best parts of Yahoo's Internet business, such as its online content, advertising and search, with its online services efforts.

"I would expect to see the Yahoo brand come out of this very, very strong," he said. In particular, Microsoft has been making moves to drive more video and other multimedia content online through MSN, and that is one area where the company could give up its own identity in favor of Yahoo's, Smith said.

Andrew Brust, chief, new technology for consulting firm twentysix New York, said that the combination of Microsoft's existing Web technology and the Yahoo brand would be "nicely complementary," though he acknowledged the risks of such a union. Even so, "risk aversion is not a good Internet strategy," Brust said. Taking a risk in this area as well as bringing "some truly Internet-focused mindset into the corporate culture" may be just what Microsoft needs.

Others likened the deal to another risky one, HP-Compaq, which many feared would be a disaster because of product overlap and cultural differences. That deal eventually proved successful.

However, it's important to keep in mind how much more of a role that culture and the cool factor plays on the Internet than it does in the world of traditional computer hardware, warned Outsell's May. He said Yahoo users may be put off by the notion of Microsoft as their new daddy and see Google as the lesser of two evils, which would defeat the notion of the Microsoft-Yahoo union in the first place.

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Elizabeth Montalbano

IDG News Service

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