# Friday, 13 June 2008

Yesterday Yahoo! announced a deal that will outsource their search engine to Google. For those of you who don't remember, Yahoo use to outsource their search engine to Google about 8 years go, and Google ate Yahoo's lunch. That said, this is the final nail in the Microsoft-Yahoo merger. So the real question is "what's next" for Microsoft. They have three options at a high level:

1. Go Nuclear. Launch an all out court battle against Google-Yahoo starting with a lobbying effort in Washington, DC. We saw how effective Netscape, Sun and Oracle used the US Government to bring Microsoft to heel. (And more recently Google's complaints about Vista.) Microsoft saw how effective (some say Bill Gates was never the same after that experience) the nuclear option is and may just decide to go down this route as payback for both the Yahoo hubris and the old IE trial.

2. Do nothing. Remember how big and bad AOL was 10 years ago? Netscape? They were the hot new kids on the block that was going to dethrone Microsoft. Ten years later, Microsoft is still making buckets of money, revived interest in its development platform with a new push in 2002 (.NET) and AOL is practically bankrupt and Netscape disappeared (oddly enough at the hands of AOL, sound familiar to Google-Yahoo?) Microsoft can argue that the creative destruction of the Internet companies is more of a threat to Google than themselves. The Google model has not changed in 10 years: PageRank is old and outdated (still gives you irrelevant results and forces you to search like a techie). In addition PageRank is being gamed and people are getting frustrated. People are exchanging, buying and selling links on web pages with the sole intent of manipulating search results. Someone will come up with a better system and out Google Google. (Memo, it won't be Live Search.) Microsoft can sit back and develop its Mesh and Cloud computing offerings (Web as a platform) and watch Google struggle with growing pains, more defections, US regulatory issues, and challenges from hot new startups and see where the chips fall. My guess, both MS and Google will come out ok with this strategy.

3. Acquire a large portal. This is an attractive option, but nobody has the eyeballs that Yahoo! has. Only MySpace and Facebook have the eyeballs and they have problems making money.

So if you were Steve Ballmer which would you choose?

Comments are closed.