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Originally published May 14, 2007 at 12:00 AM | Page modified May 14, 2007 at 2:01 AM

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Brier Dudley

MSN, Yahoo! partnership envisioned

The marriage of Microsoft and Yahoo! didn't happen as the tabloids predicted, but I wonder if the aging Internet giants will try a domestic...

Seattle Times staff columnist

The marriage of Microsoft and Yahoo! didn't happen as the tabloids predicted, but I wonder if the aging Internet giants will try a domestic partnership instead.

I've been thinking this since I met with Scott Moore, the former head of Microsoft's online-content group, who left two years ago to run the Yahoo! news and information group. Moore, 46, didn't say anything about the companies merging and didn't drop any hints. But the more I learned about his company's strategy, the more a partnership, with MSN at least, seemed to make sense.

Here's my theory.

Search is a great business, but the fascination with it is starting to fade. Search is becoming a utility we take for granted; content is where the Web's sizzling now.

No wonder Google bought YouTube. Google's also creating content in the form of online productivity applications.

Meanwhile, Microsoft has cut back on content initiatives and focused on building its search business.

Content has always been Yahoo!'s strength, but it doesn't have applications to respond to Google's new thrust. A partnership could fill these gaps, without sacrificing their franchises.

Some say Microsoft and Yahoo! could never overcome their cultural differences, yet Moore and other executives have cross-pollinated the companies in recent years.

About the time Moore moved south, Microsoft hired Yahoo! research director Gary Flake to run its Web laboratory. Then it hired another Californian, former Ask.com Chief Executive Steve Berkowitz, to run MSN and other online services.

This theory didn't come from Moore. We mostly talked about the media business, over smoothies at the Washington Athletic Club in April.

But the synergies made sense after our conversation, when the merger talk resurfaced. Draw your own conclusions. Here are some edited excerpts:

Q: MSN has been pretty low profile recently. What do you think is happening? Will it turn around?

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A: By rights, I would say Microsoft should be the dominant online-media company. If you go back to the late 1990s when Bill [Gates] sent the famous Internet tidal-wave memo and galvanized the company to go hard core after the Internet, it really felt that we were going to build a massive business. You could see the future as it has played out.

But broadband took longer to deploy than the early projections and Microsoft felt it wasn't such a good investment, so they pulled way back.

Then Google came along and all the focus went to search and away from the media stuff.

I don't know what they're going to do next, I really don't. On the one hand it makes me sad a bit, as somebody who spent a long time there and still has tons of respect for the company and still owns the stock.

On the other hand, I'm just happy they're not a bigger, tougher competitor than they are right now. I prefer it that way, given where I work right now.

Q: So Microsoft was ahead of one wave, then behind the next one. Are we entering another content cycle?

A: Where the attention or where the buzz goes, it's hard for me to predict that, but there's no question that the Internet as a media, as a content-creating, consuming activity for tens and hundreds of millions of people, is just going to continue to boom. It's just on a steady upward trajectory.

When you look at the percentage of time spent across all media, the Internet is the only one that's growing fast, almost all the rest of them are declining.

The thing about search, nobody took search seriously as a business until four or five years ago.

People always looked at it as, yeah, you should have it so people can find the content.

Then Google figured out how to monetize search, and it's just unbelievably profitable and efficient as a marketing tool. Yahoo! has a strong play in search as well, but at the end of the day we search to find something to consume.

The time spent in search is very, very small compared to the time spent in [other activities].

E-mail is the top time-spent category of activity; I think news is second or third after that. Search is way down the list. It just turns out that in efficiency of monetization, it's at the top.

Q: Google's new content is apparently going to be applications. Microsoft has a story there, Yahoo! doesn't. Will Yahoo! offer productivity apps?

A: I hope not.

One of the things I really liked about going to Yahoo! was I could see two years ago that Google and Microsoft were headed for a head-on collision, not only in search but over productivity applications. It's already a war; it's going to be a long and bloody war.

I think Yahoo! has the opportunity and is taking advantage of being an alternative to both Microsoft and Google, both for advertisers and users.

Our core business is a media business. We're a media company that's driven by technology; that's how we talk about it. Whether it's search advertising or display advertising selling on our Web sites, that's our core business, that's what we want to do.

Q: People keep talking about Microsoft and Yahoo! getting together. AOL and Google also have a partnership; could there be a merger there?

A: I would be very surprised if Google bought AOL. They certainly, I'm sure, like having the search business, it's a lot of search volume, but it's fundamentally a different business, the content business, the media side of the business.

From everything I've read and seen and from people I've talked to there, Google is not interested in the content business. They want to stay focused on search and they want to figure out what the next big thing is that isn't search.

In terms of Yahoo!, Yahoo! used to power Microsoft search through Overture and then Microsoft pulled out of that deal.

We would love to have their business again if they decide to do that, but I'm sure Microsoft is going to stay committed to building their own [search] engine and driving that for themselves. But it's constantly evolving.

Q: You and other MSN managers left, then Microsoft hired some Californians. Any ideas how it will be reorganized next?

A: I've lost track. I've been gone two years and I don't know how many reorgs they've had since then.

That was one of the things that drove me nuts. I had four bosses in my last year at Microsoft.

It's hard to get a lot of traction when you're constantly churning management. That's been a nice thing about Yahoo! There's the media side and there's the search side. Those are our big levers, so everybody at the company is involved in one degree or another on those things.

Q: You run the biggest online news site, and you're increasing its focus on local news and content. Will newspapers be gone in five years?

A: No. There will be more consolidation that happens, but most newspapers have a good long life ahead of them.

Brier Dudley's column appears Mondays. Reach him at 206-515-5687 or bdudley@seattletimes.com.

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About Brier Dudley

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.
bdudley@seattletimes.com | 206-515-5687

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