Majestic Research

The Wall Street Journal Online

A Deal Would Help Microsoft Target Consumers

By Mylene Mangalindan and Ben Worthen
Published: February 01, 2008

How will Microsoft Corp.’s proposed acquisition of Yahoo Inc. affect computer users? It will help marry an individual’s technology habits in the office with those of the habits in their home, say tech analysts and business users.

Meeting the needs of businesses has been Microsoft’s bread and butter, providing software for office tasks from spreadsheets to word processing to email. In recent years, it also has expanded its focus to consumer services with initiatives like its Xbox video game console and MSN Internet portal. The proposed Yahoo acquisition is Microsoft’s boldest move to position itself as a consumer tech company, since Yahoo provides numerous consumer Internet services such as instant messaging to stock quotes and sports scores.

“The writing has been on the wall that Microsoft is moving to more of a focus on consumers for some time,” said David Mitchell Smith, an analyst at the Gartner Group. But the company is big enough that it can maintain focus on both consumers and corporate users, he adds.

If the deal goes through, consumers likely won’t see overt changes—at least initially—in the services they use since most adjustments will involve behind-the-scenes integration of the companies’ Web properties and technology.

But consumers may see significant changes in areas that represent the biggest revenue sources that a merged company would mine. Specifically, users would likely see better algorithmic search technology, which Microsoft has already been improving, and more targeted advertisements. “Ultimately what people care about on the Web is finding what they want cheaply and quickly,” says John Aiken, an analyst at Majestic Research.

A combined company would also be more aggressive in signing up other Web sites and publishers where it could display its ads, such as online retailers and content sites, to compete with Google Inc.’s AdSense program. Consumers might see ads closely tailored to their behavior, interests or personal profiles on other Web sites that allow Microsoft-Yahoo to display ads there.

Most businesses couldn’t operate without software from Microsoft, so the prospect of a combined Microsoft-Yahoo that isn’t completely focused on their needs concerns some corporate tech leaders.

“I could see how Microsoft could shift its focus to its Internet business to the detriment of its desktop software business,” says Leon V. Schumacher, chief information officer for the American operations of ArcelorMittal, the Dutch metal concern. Still, he adds it’s too soon to worry.

Other corporate tech professionals see the acquisition as an opportunity. Yahoo could give Microsoft immediate access to its popular online software like email and instant messaging, plus future innovations. That could allow the Redmond, Wash., software giant to create versions of this software designed specifically for business, says Marc West, president of the commercial markets division of H&R Block Inc., and formerly the company’s CIO.

Such software would make it easier to train new employees who are used to using Yahoo’s software in their personal lives, says Mr. West. The biggest question in his mind is whether Microsoft is solely focused on online search and advertising or also has its eye on what the deal means for business tech users. “They have a great opportunity,” he says. “But I can’t guarantee that they won’t screw it up.”