How Microsoft could destroy Yahoo (and itself)

I'll leave it to others to comment on the potential impact on the newspaper industry of the proposed Microsoft-Yahoo takeover.

I'm interested in how Microsoft may be faced with a choice: Change who you are in a very fundamental way, or destroy both Yahoo and yourself in the process.

That is the very choice facing newspapers today, and we might learn something by considering how this takeover might play out.

Why does Microsoft want Yahoo, anyway? Here's why: It's four o'clock in the afternoon for the Microsoft software empire. At four o'clock there's plenty of daylight left, but night is on the way.

That's the way it is for Microsoft, which built its lock-in software empire in an economy of scarcity (and some shady business practices). Despite all of Microsoft's efforts, scarcity in the software world is disappearing.

The Internet is responsible for that. It made possible the open collaboration by volunteers and independent companies that created Linux, Apache, an array of free database servers, free programming languages like PHP and Python, and ultimately competitors like Google who are making the old world of desktop software and desktop operating systems largely irrelevant.

The cool stuff is on the Web, not the desktop, and we don't need Microsoft for that. This is the nightmare that Microsoft has been fighting from the start, the reason it opposed the open Internet from the start, the reason it suffocated Netscape at the start.

So it's four o'clock, and Microsoft knows it has just a few more years to move from being desktop-centric to being a Web-centric business that's more like media company.

Its own efforts (MSN) have been a mixture of serial failures and very marginal successes, so something big has to be done now.

But here's the danger: Microsoft's DNA would be poison to Yahoo. Instead, Microsoft needs an injection of Yahoo's DNA. It's unlikely to accept that.

Microsoft's internal value system tells it to tie everything together in order to defend the core. Defending the core, as we in the newspaper business have finally begun to understand, ultimately prevents you from innovating.

Instead of embracing open standards, it peddles second-rate proprietary tools like ActiveX, Silverlight, and the ill-fated "Plays For Sure" audio system, all intended to lock consumers into a Microsoft-only solution. Instead of competing on merit, it tries to prevent licensees from supporting other standards.

What a contrast is Yahoo. Like most successful Web companies, Yahoo built its business on open-source tools like OpenBSD. Rasmus Lerdorf, who invented PHP, works there, and Yahoo is probably the largest single user of PHP in the world. Yahoo contributes heavily to open-source projects, hosts open-source conferences, promotes open standards and gives away its own code. It's not perfect, but it's almost a mirror image of Microsoft.

Yahoo doesn't need an injection of Microsoft, but Microsoft could use an injection of Yahoo. Will it take the medicine? I doubt it. Like a newspaper taking over an entrepreneurial dotcom startup, I fully expect Microsoft to destroy everything that's open and creative about Yahoo, driving away its best talent and its most loyal users.