Swallowing Yahoo may make Microsoft want to take a nap

If Microsoft succeeds in buying Yahoo for $40 something billion I got to wondering how long will it take Microsoft to achieve ROI on the acquisition?

Well, last year Yahoo’s gross profit was a bit over $4 billion. If revenue and profits continue at that rate in a mere 10 years Microsoft will have made back its money, not profited mind you but broke even.

Okay, I’m not naïve, that’s not why Microsoft wants Yahoo. Then why do they want them?

Believe it or not the idea of market share did not die with the bursting of the Internet bubble. Microsoft wants Yahoo not for its revenue but for its customers so that it can gain market dominance and ultimately ad revenues from online advertising. The theory is the sum is worth more than the parts.

Perhaps Microsoft has it all wrong.

Rather than gorging themselves like a python eating a small pig, Microsoft should consider changing its approach to how it competes. After a python has its huge meal what does it do? Sleep for a very long time before it can fully digest its huge lunch.

I am afraid the same can be said of Microsoft if it buys Yahoo. Rather than making it more nimble, at least in the short run, it will become even more sluggish and unable to adapt to a changing business climate.

Bigger is not the answer. Yes, it is part of the answer in the sense of maintaining clout in the industry. But there is more to keeping your company relevant than size. If only size mattered then AT&T, Motorola and General Motors would all be doing just fine. They aren’t just fine because they are doing something else wrong.

The times have changed and if Microsoft is to succeed it needs to become innovative and nimble. Of course it needs to be a relevant player with Web 2.0 applications but it needs even more than that. It needs to be the pioneer in the next big thing rather than playing catch up with the current big thing.