Hard to get

Yahoo and Microsoft’s on-off affair continues seemingly unabated. Microsoft decided to play hardball – well, there’s no surprise in that, I guess – by setting a hard deadline after which it would walk away. Well, that deadline came and went, and Yahoo refused to roll over onto its back. Microsoft then announced that it was withdrawing its offer and that everything had come to a crashing halt. That might even be the end of the story, but a part of me thinks this is just the latest sortie in a tactical assault by Microsoft against Yahoo.

It’s clear that Yahoo’s share price has been badly affected in the days since Microsoft walked away, and it’s not impossible we’ll see a number of lawsuits by Yahoo shareholders wanting to know why Yahoo’s board held out for a higher price than Microsoft was prepared to pay, thereby depriving them of a considerable windfall. In the meantime, the share price is likely to continue falling, making the company more affordable for Microsoft if it decides to make a renewed bid in the future.

I’ve spent a lot of time recently with Microsoft staff at various conferences, and they valiantly stuck to the public face of the story – that there’s lots of “shareholder synergy” and “value-add” and “leverage”, and all those other meaningless marketing buzzwords – but when I plied them with extra-large Dr Blofeld-style interrogational gin and tonics and asked them to explain these phenomena in more depth, I detected a certain vacancy in their umms, errrs and ah wells. None, and I mean none of them, could point me toward any credible problem for which the Yahoo acquisition looked like a solution.

Here are some figures plucked from the current Microsoft datacenter cloud: two billion internet searches per month; an index of more than 20 billion documents and 400 million images; 550 million users within MSN; one billion Live ID authentications per month; 8.2 billion MSN Messenger messages per day. All this is enough to give you a headache already, but the one that makes my head swim most is “adding 10,000 servers per month”, a deployment rate that goes beyond surprising into the realm of truly frightening.

So let’s assume that rational behaviour is being forced upon the Microsoft board, and that Yahoo will quietly fade away all by itself. Given that Microsoft has shown itself willing to loosen the purse strings, what might it spend its money on instead? Well there are several acquisitions that might look obvious to trade insiders, but Microsoft already has much, if not most, of the engineering capability it will ever need, and has also demonstrated time and time again that adding more bodies to a problem doesn’t necessarily make things go any quicker.

An alternative would be to spend some money buying a hardware player in the storage arena, but although Microsoft’s storage story is pretty wretched, the problem doesn’t lie with the back-end hardware. Going after EMC would bring VMware on board, but I can’t see any competition regulator letting that happen. And does Microsoft really want to be in the Big Iron hardware game anyway? No, it’s way too late for that.

Where Microsoft does need to do real work is in coming up with a coherent storage strategy that will appeal to IT managers. For years we’ve had various back-end solutions wafted under our noses for storing data. Is it Exchange Server? Or Sharepoint Server? Or WinFS? Or something else entirely? It’s about time there was a coherent solution that didn’t end up looking like a multiheaded Christmas tree. Or are we now so numb to these issues that we don’t really care how many different data types we have to back up, with no one really flinching at the prospect of storing lots of XML Office documents inside Sharepoint Server (aka SQL Server) as an XML blob? Throwing a few billion at this problem might work wonders…