Microsoft Should Buy Palm, Not Yahoo!

Farhad Manjoo has a bit of very well reasoned advice for Microsoft today in his column on Slate: forget about Yahoo!, and buy Palm instead. That advice makes a lot of sense. Though Microsoft generally denies any current interest in pursuing a purchase of Yahoo!, rumors of some sort of whole or partial takeover seem to crop up every couple of months. But Microsoft is a software company, not an advertising company, so purchasing Yahoo! doesn’t make much sense.

Even at the greatly reduced price (versus last March when they first made their buyout offer) that Yahoo! would now be able to command, Microsoft buying Yahoo! won’t do much to help the company compete with Google. As Manjoo points out, Microsoft’s bread and butter is software sales, and specifically, corporate software sales. Google isn’t going to beat them any soon time there, and purchasing Yahoo! isn’t going to help them either.

“It’s true that companies are increasingly replacing their desktop software with Internet apps—but many still want to pay for the stuff they’re using,” writes Manjoo. So getting into the business of selling ads won’t help Microsoft compete. Unless you think that the “the economic future of software depends on advertising rather than paying customers,” then there’s no reason to think that free software like Google’s web apps will noticeably hurt Microsoft. “That’s a foolish bet — and buying Yahoo will only magnify the foolishness,” he writes.

What they need to do, rather, is get with the times. Microsoft’s issues of late have been miscalculations in the direction of personal computing, according to Manjoo, and not an inability to compete in the areas of web advertising and search.

Microsoft, for example, didn’t anticipate the popularity of low-cost netbooks becoming such an important part of the personal computer landscape. Their current latest generation operating system, Windows Vista, doesn’t run well on those underpowered netbooks, and as a result many of them ship with either an earlier version of Windows (XP) or Linux. Further, the Redmond, Washington-based software giant has also been slow to offer the software as a service applications that many of their customers want.

The next big shift in computing is probably going to be mobile — it’s already happening. In America, on an average day greater than half of all adults use cell phones for at least one non-voice data purpose. And in Japan, there are already as many mobile web users as there are people who access the Internet via a traditional computer.

Manjoo thus suggests that Microsoft should skip buying Yahoo!, and instead buy Palm, which closed trading today with a market cap just over $850 million — meaning it could be had at a fraction of the cost of Yahoo! Palm just unveiled a smartphone at this year’s CES conference called the Pre that from all outward appearances seems to be the best non-Apple analog to the iPhone to date. Or in other words: Palm might be sitting on the first phone that could truly be worth of the title “iPhone killer.” Palm has gorgeous hardware and software, but they lack marketing muscle, and their exclusive partner for the phone — Sprint — is a third place carrier in the US that has been hemorrhaging subscribers.

Microsoft could snap up Palm and do what it does best: license the software to corporate partners and flood the market with viable iPhone alternatives. With recent talk of netbooks and other web-connected devices running Google’s Android mobile OS platform, and the iPhone steadily chipping away at the smartphone market, an acquisition of Palm could ensure that Microsoft doesn’t miss the next wave of computing. Of course, it would also mean turning their back on Windows Mobile, which might be a hard pill to swallow for Microsoft.

But Manjoo ends his Slate piece with some numbers that convince me that whether or not buying Palm makes sense for Microsoft, focusing on software instead of web advertising definitely makes sense: “In 2009, companies are expected to spend about $45 billion on Internet ads. The market for software is nearly 10 times that size—around $388 billion this year. If you were Microsoft, which would you choose?”

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  • ZenPsycho

    It doesn’t matter what microsoft buys. They have the Anti-midas touch. Anything they would buy would instantly turn to shit. If they take the tack of completely assimilating its assets into the main company, the operations of yahoo or palm or whatever would become subject to the massive and well known innefficiencies, communications problems, and marketing/management strongarming that are classic microsoft.

    Then the branding also becomes marred by microsoft’s notorious bad reputation among the audience that Palm and Yahoo cater to, so it would alienate the current audience with no coherent plan for obtaining a new audience that an MS Yahoo or MS Palm could appeal to.

    The only way MS could possibly make any purchase worthwhile is if they only own the company on paper, but leave the branding and operations of the company completely autonomous. Microsoft is like a massive fruit punch, and there’s no point throwing a litre of perfectly good pomegraneate juice in with the 100 gallons of cheap apple cider. It’s just watering things down, and killing a good thing.

  • israelisassi

    Stop the hate! Let them innovate!

  • http://freebsdhowto.com/ cipixul

    hahaha I totally agree with you ZenPsycho! For too much time we saw Micro$hit do the same thing over and over… Sure they innovate, but at what price?

    Open Source people innovate too, and they’re free :) Other companies innovate too and you love paying for them.

    M$ has a horrible licencing system, huge prices for their software, and usually the reputation that you should wait for atleast SP2 so that you get what you buy, when regarding to OS’s.

  • Nick Bramwell

    I really hope that Microsoft don’t buy Palm. I really like Palm products but Microsoft just ruin everything, so if Microsoft buy Palm, the Pre (and webOS) may make it into the big time but will lose it’s soul.

  • http://www.studio-gecko.com/ XLCowBoy

    Palm is fine where it is. It would be a bad move on their part to sell to Microsoft.

    Palm’s new OS is exactly what is needed to compete against Apple’s iPhone. Having Microsoft muddle up the picture would only benefit Apple.

  • jericxz

    MS should buy sitepoint. :)

  • AndrewCooper

    I’m a Microsoft fan-boy naturally, but I know Microsoft has too many inefficiencies and negative things surrounding them, but, I hate to see Microsoft just…Be put into the back of cyberspace.

    Microsoft first, need to re-do all of their strategies. Pricing, Licensing, Marketing [Or make one for that matter], Product and Branding strategies, and others.

    They need to re-brand themselves. They need to innovate the company, not other companies and their products. It’s kind of like a blog post I read last year from Sitepoint about Yahoo! and it’s executives, they need a total reshuffle and get with it.

    They almost lost out on the Internet, but they made it just in time. But now, they’re lacking behind with IE6 still supported, and IE7 being crap…And IE8 only just fully supporting CSS 2.1. A new release every few years? Nevermind that! Make released every few months, updates! It’s a technology company and they should know how fast technology advances!

    Andrew Cooper

  • http://www.olsenportfolio.com/ nrg_alpha

    End of articles asks: “If you were Microsoft, which would you choose?”

    Neither… Instead, I would choose to fix up their own product and reputation problems by resolving core incompetencies. Get rid of bad management and replace them with intelligent, fresh and forward thinking people who are not afraid to rebuild through taking bold initiatives to bring the company from feeling archaic to being an extremely fit, highly efficient and amicable company. One that carries a brand new aura which conveys being ahead of the times as opposed to being behind Apple. Purge all aspects that are not working for them, and seriously revamp what has potential. What Microsoft needs is a Barack Obama or a Rudolf Giuliani at the helm.

  • http://www.aradiom.com Michael Larsson

    Microsoft could but Palm on the real cheap soon after it goes bankrupt.
    They would get real awesome technology for a song. But more importantly will they able to leverage that technology after an acquisition. Very few companies execute acquisitions well. Up to 80 percent are failures. Google is a great acquirer. So is IBM and Cisco.

  • David

    I think Microsoft should buy Yahoo. I am a Yahoo fan, and I love what Microsoft is doing with there development tools like the Free express edition (ASP.net, C#, VB.net, SQL), visual studios 2008 and server 2008.

    A developer can now create a nice professional website with a content management system just using the Express edition tools and get the site hosted for $42 dollars a year.

    Yahoo has a nice developer network that includes some good APIs and web service for Microsoft to use against Google. Yahoo has came out with some nice tools and services like eventful.

    There was news this week Apple is going after Palm over the patent. Apple was smart to get a patent approve until this month.

    With Palms pending lawsuit from Apple, if I was Microsoft I would place my bets with Yahoo.

  • http://www.appropriatesolutions.co.uk AppSol

    No. Please Microsoft, don’t buy Palm. I love my Tungsten E, and I’ve waited patiently for Palm to remember how to make a good Smartphone / PDA for years. Now they finally have, to have it bought up by Microsoft would just be too much.
    Microsoft is a one trick pony, Office (insert release branding here, but who cares as it might as well be Office ’97 to the majority of users), that’s where their money comes from, that’s why Google with it’s office app’s makes it’s lower lip tremble.