Summary
1. Both Microsoft and Yahoo need to gain from any alliance 2. Yahoo is an early pioneer on the internet and Microsoft is the pioneer of the PC, but can they take on the upstart Google?
Analysis
The challenge for established high tech companies is to maintain their edge as new technology replaces old standards. Services available on the web are transforming how PC's are used. This is creating challenges for Microsoft and Yahoo and the risk is that they will be made irrelevant.
The opportunity for Microsoft is to create a model of companies that will partner with them. Microsoft has been very successful in creating partnerships in the past. One of the most strategic moves Microsoft made was to create a market for the development community. In the PC operating system business, the company that had the most software developers on their platform won. Microsoft was able to create that environment first with DOS (over CP/M and others) and then again with Windows 95.
It is possible again to see the partnership with Yahoo as a beginning (or at least a significant sized) partnership. If Microsoft and Yahoo can begin to build a community where others can join, they might have the ability to overtake Google. At the moment Google looks like Apple in 1993. Google has a lot of cool applications, but they are all Google's proprietary solutions. In 1993, Apple had the cool applications that were all proprietary.
If Microsoft creates a way or framework for collaboration, then developers will follow Microsoft yet again. This would mean that applications would be written for this framework. This would be similar to Apple's App store (Apple and Steve Jobs learned from their mistake in 1993). The fact that Microsoft is actually looking for a win win strategy is probably better than just buying Yahoo. Microsoft will need need strong partnerships to challenge Google.
Of course, this is speculation on my part about what Microsoft's really plans to do. But There is some evidence to support my thinking. The most compelling evidence is that Microsoft is still interested in a partnership even knowing that Yahoo is not for sale. The second fact is that Microsoft understands the competitive pressure Google Apps have on their business and will be looking for a counter strategy. The last piece of evidence is that Microsoft has admitted that they can not outperform Google by growing their current online properties.
Another thing is also clear. Soon there will be so many different kinds of web-based tools that putting them together in different ways will become a differentiator. It reminds me of another time. The time when Microsoft Office was created. But that is another article....
