The Big Deal

2:00 PM -- Just in time to stop me from gloating about the Warriors, we've got the renewed idea of Microsoft Corp. (Nasdaq: MSFT) and Yahoo Inc. (Nasdaq: YHOO) and a $50 billion merger...

I'll admit I don't know Yahoo's business thoroughly. But Microsoft is in a position that sounds familiar. Like Cisco Systems Inc. (Nasdaq: CSCO), it's seeing its franchise product weakening.

For at least two years, Cisco CEO John Chambers has talked about the need to expand beyond routers, because low-cost competition will eat up most of the market eventually. That's led to left-field purchases like WebEx and Five Across.

Microsoft has to plan for a different future, too. It's not about the operating system any more -- it's about the Web. And Microsoft has a less than enviable track record at trying to Webify itself. Yahoo would do the trick, but the culture clash could sink the whole thing. I know it's supposed to be a merger, but with Yahoo execs likely to leave in droves, you'd have Yahoo products ending up as zombified underlings to Microsoft overlord brands.

Charlene Li at Forrester Research Inc. has a more thorough analysis, looking at what it would take to make this work. (Short version: A lot.)

— Craig Matsumoto, West Coast Editor, Light Reading

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