At first, Microsoft's offer for Yahoo! looks like a bold bid to combine
two key Internet players. But I think it's a sign of weakness. For
years, Microsoft has tried to grow its own new businesses, as it did
with Xbox and Zune. But its online ventures haven't met with much success. Buying Yahoo! might be its last resort.

By
any standard, Microsoft is a very successful company. But its most
profitable products are Office software and operating systems, and both
may never again be as important as they are now. Many pundits believe
that, in the future, word processing and spreadsheet programs could be
used on the Internet, in what some have called "cloud computing."
So could many aspects of an operating system. Microsoft's Windows
business is already under pressure from open-source alternatives, and the reaction to Vista has been polite at best.
If Microsoft's core businesses do tail off, it could coast profitably
for decades. But the company has always been about growth.

And
growth can only take Microsoft in so many directions: To the developing
world, to the living room, and to the Internet. The first isn't
promising; if Microsoft wants to compete with open-source software, it
will have to reduce its prices and cut down on the piracy of its
products. The second direction has some promise — especially with the
Xbox division building up market share — but it will be a long battle
that an engineering-driven company is ill equipped to fight. Anyone who
has suffered through the process of installing Windows wants another
company in charge of his set-top box.

And third, competing on the Internet brings Microsoft up against Google.

Microsoft
may have met its match in Google, a nimble competitor full of smart
programmers, flush with cash, and dedicated to conquering all it
surveys. Google also has several key advantages. First, a substantial
portion of the American public seems to believe that the company
follows its guiding dictum of "don't be evil." Some people will always
see Microsoft as a bully and Google as a plucky underdog, even though
in fact, Google represents the biggest threat to personal privacy since
the Patriot Act.

Perhaps more importantly, people like Google
because it has a well-deserved reputation for making reliable,
easy-to-use products. Google's home page is the essence of elegant
simplicity, complete with a sense of humor on the holidays. Microsoft's
products, on the other hand, are designed by engineers for other
engineers. Just yesterday, a friend had to help me hook up my PC to an
external hard drive when they couldn't connect correctly. Google has
never caused me that much frustration. (And when I used the drive with
my Mac, I just plugged it in.)

This makes me wonder whether
Microsoft is solving a problem it doesn't have. With Yahoo!, Microsoft
will acquire a company that is losing the war for the search business
and doing well in the kind of media businesses that Microsoft hasn't
done well in, anyway. What it really needs to do is to come up with
great products that are innovative and easy to use.