From an analysts perspective, I keep reading that the Microsoft Yahoo merger will allow "Microsoft and Yahoo to team up against Google". From a 30,000 foot view, this may make sense. As a Yahoo employee, I’m writing to postulate that it will make the situation worse for both Yahoo! and Microsoft. Let’s take a look. Disclaimer: These are my own opinions based on watching Yahoo and Microsoft for years. I don’t have any "inside information" that would allow me to make a better decision than any other outsider that closely watches both Yahoo and Microsoft.

There are several key issues that will be introduced by from merging Microsoft and Yahoo. First during the integration process, and then considering the state of the unified company after the merger is complete.

Key issue #1 - Integration challenges.

  1. 14,000 Yahoo! employees. 75,000 Microsoft employees. I wouldn’t want to be on the Human Resources team responsible for pulling this together.
  2. Two vast global technology infrastructures, using diametrically opposed architectures. Both sides will think that the other should rewrite everything.
  3. Two different styles of software development that will clash. Yahoo! is used to a web based approach, Microsoft is used to shipped-software.

Microsoft estimates 1 billion dollars a year savings in "operational efficiencies". Instead, I predict it will cost more than that to merge, with tangible and intangible costs, and it will be two years before the integration is complete enough to be palatable for both Microsoft and Yahoo! employees.

Key issue #2 - Anti trust hurdles
After Microsoft put Google through hell on Microsoft anti-trust issues for Doubleclick, Google has hinted that they will be doing the same for Microhoo. And how can you blame them? Special areas of consideration:

  1. Instant Messenger - Yahoo Instant Messenger (#1) and MSN Messenger (#3).
  2. E-mail - Yahoo Mail #1 - MSN/Hotmail #2.
  3. Online News - news.yahoo.com (#1) and MSNBC, #2.

And there are more. You can bet there will be months of reviews and pain surrounding this issue, the time spent on anti trust issues will distract both companies from their core competencies for quite some time.

Key issue #3 - Resources aren’t the problem. This one is the surprise for most. Let’s ask ourselves, why is Google #1 in search traffic? Why has Microsoft, with all the resources imaginable, and even going as far as paying for traffic, remained a distant 3rd? I can’t possibly answer this question here, but I can confidently say that the problem is not a shortage of cash or employees. Neither company is saying "If I only had 1 billion more dollars, or more people, we could spend it and beat Google". If it were that easy, they would have done it already! There are reasons why Yahoo! and Microsoft have been unable to catch Google in Search, but it’s not about resources, and a combined Microsoft-Yahoo! effort will not be better positioned to take on Google.

Key issue #4 - Impact on Yahoo talent Hiring top quality engineering talent is already difficult enough, especially in the Bay Area. Who would possibly want to go work for Yahoo! right now, given all this uncertainty? Much of the top talent at Yahoo has already voiced their concerns, many have said that Yahoos will leave altogether. Even for those that decide to stay, the morale impact of going through a hostile takeover has to be unsettling.

So now the key question. What does Microhoo look like when this is all over with?

  1. A slower, less nimble company that still doesn’t have what it takes to beat Google. Processes will become even more monolithic than they already are, and Google will increase it’s lead even faster.
  2. The combined entity will face a talent shortage because key Yahoo! talent has left in disgust, and new talent will be harder to obtain moving forward because they will refuse to work for Microsoft.
  3. Two years of lost focus, effort, and energy dealing with integration challenges and anti-trust issues; meanwhile Google, unburdened, has spent all of it’s energy on product development and jumped two years further ahead.

Is Google worried about a Microsoft/Yahoo team up? No. This is the best thing that they could have hoped for. If I worked at Google (cough), I’d be dancing in the streets of Mountain View.

Steve and Bill, I think it’s time to reconsider.