What Microsoft Buying Yahoo Really Means

Perhaps you don’t need any more explanations of the significance of Microsoft’s offer to buy Yahoo, but I don’t want to lose my media/tech blogger license, so here’s mine.

Microsoft’s acquisition of Yahoo is akin to newspaper industry consolidation over the last few years — combining business with solid cash flow to achieve some efficiencies and market share consolidation, but without visibility into the long-term viability of the consolidated business models.

The main problem with Microsoft and Yahoo, looking forward, is that they are not web-native companies — they rely on centralized control models, rather than distributed network models — thus they are not aligned with the grain of the web, which is a fundamentally a distributed network.

Microsoft and Yahoo rely on software lock-ins (Windows, Office, IM clients, web mail) to maintain their user bases — but without distributing any of that value to the network or harnessing the value that the network would give back if they did. As such, they do not benefit from network effects, which is precisely what powers Google — and why Google will likely still beat a combined Microsoft/Yahoo.

Jeff Jarvis has written about the difference between Google and Yahoo many times, but it’s difficult to break through traditional media business thinking. What drives the success of Google and other web-native companies is completely counter-intuitive from the perspective of what drove the media business before the web.

Media use to be about tightly controlled silos — now it’s about loosely affiliated, distributed networks. Legacy business can, potentially, evolve and survive, by only through a radical change in thinking.

The future of media belongs to web-native companies — particularly those who can innovate web-native business models — that’s what Google did with AdWords’ liquid market.

Above all, the future belongs to companies that can leverage the network — and that can become the network.