Henry Blodget can sometimes be wrong, though no one is always right with forecasts and what not. Sometimes he’s right. But even when I disagree with him, he is one compelling writer who can argue his points quite succinctly.
Today he argues that Yahoo/MSFT will be disastrous. His main reason (he lists a few) is that:
There is a fundamental difference between the way Google and Microsoft approach the Internet:
- Google wants to use the Internet to build a huge business (and, in the process, kill Microsoft)
- Microsoft wants to use the Internet to protect its already huge Windows and Office businesses.
And so he concludes that:
Google has built its entire business around cloud computing. Microsoft is trying to transform its entire business to avoid being killed by cloud computing. Yahoo or no Yahoo, the history of business (including Microsoft’s) makes it crystal clear who’s the favorite to win this war.
I don’t disagree that integration will be challenging (note to MSFT: feel free to hire me as a consultant to help with the post-merger integration, but that’s a separate point) and that there is an inherent culture clash with how each firm views the Web… but the conclusion is off:
Google’s growth is starting to slow, but even in the high-growth period up to 2008 where Google has built its fantastic franchise in online advertising, Microsoft has continued to grow and build its business.
Windows and Office are really not in any short, mid or even long term material and actual danger of going anywhere or being destroyed. Yes, there are risks; yes, there is a low probability that it will go to 0, but in all likelihood, it won’t (just to be clear: I am NOT saying there is no risk, I’m just saying this is more about online advertising than cloud computing).
Why? Because only the hippie love crowd thinks that everything - and we mean everything - will be cloud-based.
And, here is the key, even if everything does go into the clouds, there is nothing - and we mean nothing - that suggests that Google will walk away the winner.
Google is just as likely to become a victim of the innovator’s dilemma curse as it focused on retaining its grip on online advertising revenue and misses actually doing much tangible in cloud computing.
Looking at MSFT’s revenue breakdown [from MSFT via MSFT VP Don Dodge]:
All Microsoft business units reported strong results. Here is a breakdown by division:
- Windows Client (Vista/XP): $4.3 Billion, up 68%
- MBD (Office/SharePoint): $4.8B, up 37%.
- Server & Tools (SQL Server/Visual Studio): $3.3 Billion, up 15%.
- Entertainment (Xbox & Zune): $3.1 Billion
- Online Services (MSN/Live): $863M, up 38%.
Other Highlights:
- Windows Vista has sold over 100 Million licenses
- Xbox 360 has sold 17.7 Million units
- Xbox Live - over 10 Million subscriptions
- Windows Live - over 420 Million accounts
Ultimately, buying YHOO has everything to do with duplicating Office and Windows with regards to online advertising. The NYT calls this yesterday’s war, I disagree, since online advertising is only starting to kill the vestiges of yesterday’s marketing ways. But, that’s a separate post.
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