Peter I agreed initially to this view… Yahoo sucks, MSN Search sucks…

Sucks x Sucks != $40billion.

However if you look at the situation from a wider and more far-reaching strategic view this is a critically important move for Microsoft. Search advertising revenue has absolutely 0% to do with Microsoft’s interest in Yahoo.

Google’s motto “don’t be evil” is visible in everything they do. They invest nothing in marketing or monopolization and everything in the innovation and excellence of their products. And its a strategy that has always been a winner for them.

Google’s strategy is a paradox of Microsoft’s - I’ve always viewed the 2 as archetypical Good -vs- Evil. Microsoft’s strategy is never to innovate, never to excel. They only ever either buy, or replicate the work of their competitors and then leverage their massive OS audience to ensure their products gain maximum market share (even if that means making them free) and ensure their products are as incompatible as possible with competitors to limit churn rates and crush any competition. They invest as little as possible into the quality of their product and as much as possible into the marketing and strategic monopolization of their products - Microsoft employs more lawyers than programmers. And its a formula that has always been a winner for them, unfortunately.

The future of software delivery, however, has Microsoft mighty scared I think.

Google has already developed several online office-like apps and there’s way more to come. Google’s eventual view is to offer a completely online environment with all applications served online. Just as windows was an operating environment for the IBM, Google will be the future operating environment of one’s PC. All your applications and data will be stored and accessible online. All your software licenses can be potentially recurring (attractive to both developers and users). It really is the future of personal computing. However when this happens, it will leave Microsoft entirely shut out of the personal software market (their current core business), unlike conventional ‘offline’ software, where Microsoft’s market share is undisputed, online, Microsoft is extremely weak whereas Google has a massive 80% slab of the audience.

MS can’t pull any dirty monopolization tricks in this battle,
they have to compete based purely on the merits of their products, which is something Microsoft has never, in its entire history, ever had to do. The day that happens… they’re finished.

Microsoft’s only prayer is if they can capture the second largest online portal - Yahoo. Synergizing Yahoo with MSN will afford Microsoft a competing platform from which to launch their own flavor online apps. It won’t make them stronger than Google, it may not even be enough to save them (here’s hoping), but without making this strategic move, Microsoft will be completely exposed to Google’s online environment and have no way to counter Google at that point. The game is over - RIP Microsoft. It will literally sink them.

Suddenly $40billion seems a wise investment for a troubled search engine with 20% market share. Google know it, MS know it, and apparently Yahoo know it too which is why they are claiming $30 a share is an insult.

As a public company, Google does now have increased responsibility to be profitable but I still believe their culture, in stark contrast to Microsoft’s is to create innovative concepts first, consider profitizing them second, which is why they insist their engineers spend 20% of work time freely researching and creating their own new ideas.

The fact that behind every search on Google a real-time auction is taking place between paying listers is the most brillient business model I could ever imagine. It’s interesting to consider how well this model could be adapted to property websites.

Imagine if instead of RealEstate.com.au just selling ‘Platinum’ memberships to agents till all agents had one… then ‘Double Platinum’… and so on… each agency could set a marketing budget on each property they listed which displayed it above lesser bidders for a given search criteria. Agents could no longer complain of listing costs, as these would float at real market prices.

This strategy, in my opinion, would maximise profit by floating at the supply vs demand equalibrium for each featured listing, relivent to it’s individual circumstances (eg: Agents in Wadonga would spend less to list than agents on Sydney’s North Shore)… it would also allow agents to pass such marketing costs on to their vendors, competitively driving up the cost of Featured Listings while also reducing the agent’s direct cost of subscription to REA. It would also be an excellent preemptive move, I believe, for REA to reposition its pricing model against Google should they begin seriously persuing the Australian real estate air space (As Google would pressumably be using this pricing model).