Some comments I wrote today on this Silicon Alley Insider post on new movements in the Microsoft-Yahoo negotiations ballooned to the point that I determined they would be worth their own expanded post for the benefit of my readers.

More so because they were veering head-long into serious "Business Mind Hacks" psychology issues related to Branding and Positioning.

In response to Henry Blodget’s focusing on the admittedly titillating details of the current negotiations, while mentioning only in passing the likely pernicious effects of the deal in its currently proposed form on both Yahoo and MSFT, I said this:

Why would Henry say "but that’s a different story"?

That is THE story… forget about the short-term, short-sighted, Wall Street angle… none of it will matter if Q1/2009 shows that Micro-hoo has fallen even further behind Google in search/paid search due to all of the distractions that are sure to ensue if this goes through.

Not to speak of the large-scale incompatibility of the two cultures, the potential losses in user bases for "synergized" services, etc. (especially if MSFT tramples all over everything with their typical "adroitness").

If Henry truly believes that this will be a disaster (and obviously I share his view), wouldn’t that mean that the MSN-spinoff-to-Yahoo-plus-cash option should be seriously brought into view, instead of as an after-thought?

A "friendly deal is best for all involved" ONLY IF it avoids the Micro-hoo "listing super-tanker" trap. More bulk will not solve the issues that MSFT’s and Yahoo’s respective bloated empires helped create.

In MSFT’s case, in my view they would have been so much better off if the company had been split up 8 years ago into 2-3 more agile/ nimble/ aggressive/ focused units. Who knows how well MSN (with different name) might be doing today in the internet space that MSFT despite all of the posturing is only an also-ran in?

And Yahoo’s portal approach was dead when the Web 1.0 bubble burst, they just didn’t know it yet. It goes directly against your basic Ries & Trout "Immutable Laws of Positioning": Don’t dilute the brand!

Ask yourself this question: "What’s a Yahoo?" This is the reason that Yahoo never made it into everyday language the way that Google, Xerox, etc. have.

* End of 1st comment. *

Then someone tried to say that the "as for Yahoo! never becoming a verb, it was an early decision specifically not to push that for fear of diluting the trademark", to which I just had to respond because it represents such a deep misunderstanding of the phenomenon:

Dan, the "verb usage" is not something that is decreed from up high, it is a question of the meme spreading through a language/population. And that only has a chance to work correctly if the new term (e.g. Yahoo) takes a "tip of mind" position for a whole new category. Which if "Yahoo" ever did, was diluted so quickly that it had no chance to stick in this way.

Notice BTW that similarly every new venture Google tries under it’s Google brand tends to merely slog along, because a "Google" is a "search engine". So Google Video as a brand loses out to "YouTube". Focus. Simple.

Of course Google was smart enough to recognize this and buy them. "What’s a YouTube?" has a clear answer in a way that "Google Video" never did.

Yahoo BTW just violated this again by adding video to flickr, which evoked predictable groans from the "photography purist" heavy-user set. Now it’s "a flickr is a photo sharing site plus a sort-of video sharing site, like a mini-YouTube"…

Instead of trying to compete with Google in areas that it has already locked up (and "just google it" is merely one component), MSFT and Yahoo should innovate
and create entire new categories of search and/or ad services, instead of saying "we sort of kind of have an Adwords too…"

Problem is, as an even bigger/more bloated juggernaut, the chances of that happening, and even in the event that it does happen, it getting "past committee" through the ever increasing layers of bureaucracy, are slim to none.

* End of 2nd comment. *

It is well worth studying your Ries & Trout on these matters, it’s all laid out clearly and supported by reams of real-world examples for all that wish to see clearly.

Back to more titillation 🙂

Granted, the negotiations and prospect of either a walk-away or proxy battle by MSFT including "poison pills" can be mesmerizing and mind-boggling to people interested in these kinds of industry developments, or their stock market angles (also note the new Yahoo board proposed by Microsoft, for the event of a proxy battle – this came via TechCrunch).

But none of this has much to do with the most basic questions: Is this deal a good idea? Will it work? As you know, I already placed my bet.