I have to admit that I am not surprised that the Microsoft – Yahoo! deal fell through — in fact I thought it would. It is not the issue $33 per share or $37 per share. The issue is a mismatch in culture. I remember when Jerry Yang and David Filo, both Ph.D. candidates in Electrical Engineering at Stanford University, received an award at Internet World in 1994. They had converted their student hobby into a business that went on to have a major impact on the growth of the Internet.
“Jerry and David’s Guide to the World Wide Web” became Yahoo! — an acronym for “Yet Another Hierarchical Officious Oracle” but Filo and Yang also claim they also selected the name because they liked the general definition of a yahoo: “rude, unsophisticated, uncouth.” The Yahoo! web site ran on Yang’s student workstation, “Akebono,” and Filo’s computer, “Konishiki” – both named after legendary sumo wrestlers. I don’t know for certain but I would bet anything these were both Unix systems. I also suspect that most of their development since the early days has been with Unix or Linux and certainly a lot of open source software in conjunction with the proprietary innovations they have created.
Microsoft has a lot of money and a lot of really smart people but the culture is different. Seems reasonable to assume that MSN was built on Microsoft’s software — if not then that is another story. MSN and Hotmail do not have the best reputation — at least with those close to the Internet. Some would say Microsoft had sought to subsume the Internet in the early days while Yahoo has consistently embraced the Internet from day one. Microsoft has the reputation for being a place where workers toil individually while Yahoo has been is a Silicon Valley archetype where employees tend to work collaboratively.
The bottom line is that Microsoft and Yahoo! are both successful in their own ways but arguably they are oil and water. Merging them might make sense to the financial analysts but it makes no sense to many observers. If they were to come together financially it would take a decade to fully integrate the two to gain the benefits that would be expected. It may not be possible.
One thing is for sure. The beneficiaries of the failed merger will be the lawyers who will take many millions of dollars from both company’s shareholders to sue and defend the failure to buy or sell.